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BUSINESS,  COMMERCE  AND  FINANCE 


BUSINESS  PRINCIPLES 

AJSm 

ORGANIZATION 


BY 

FRANK  R.  MASON,  A.  M, 

Secretary,  Northwestern  University  School  of  Commerce.     Formerly  Teaching 
Fellow  in  Economics,  Harvard  University. 


CREE  PUBLISHING  COMPANY 

MINNEAPOLIS  CHICAGO  SEATTLE 


COPYEIGHT,    1909 
BY 

CREE  PUBLISHING  CX)MPANT 


Copyrighted  and  Registered  at  Stationers'  Hall,  London, 

England,  by  Cree  Publishing  Company, 

Chicago,  Illinois,  U.  S.  A. 

1909 


AU  rights  reserved 
IPMJtY  morse:  stephskb 


irf^ 


CONTENTS 


CHAPTER  I.    HISTORICAL  SURVEY  OF  FORMS  OF 

INDUSTRIAL  ORGANIZATION....  11 

1.    The  Household  System 11 

IL    The  Handicraft  System 14 

IIL    The  Guilds 18 

IV.  The  Domestic  System 25 

V.  The  Factory  System 29 

VI.  Individual,    Associated    and    Cor- 
porate Forms  of  Business 35 

CHAPTER  IL    EFFICIENCY    OF    THE    WORKING 

FORCE;  DIVISION  OF  LABOR 45 

CHAPTER  IIL    LIMITATIONS  TO  THE  DIVISION 

OF  LABOR 61 

CHAPTER  IV.    THE  LARGE  BUSINESS  AND  THE 

SMALL  71 

CHAPTER  V.  INTERNAL  ORGANIZATION;  DE- 
FECTS OF  ORDINARY  TYPES  OF 
MANAGEMENT  87 

CHAPTER  VI.    MILITARY  ORGANIZATION 133 

CHAPTER  VIL    FUNCTIONAL  ORGANIZATION 161 

CHAPTER  VIIL  THE  OFFICE  AND  THE  DE- 
PARTMENTS   185 

S 


^11321 


6  CONTENTS 

CHAPTER  IX.     SCIENTIFIC      STANDARD      TIMES 

FOR  MACHINE  WORK 209 

CHAPTER  X.    THE  EXPENSE  OF  WASTED  TIME. . .  .337 

CHAPTER  XI.    EFFICIENCY    AND    WAGES;    DAY 

WORK  263 

CHAPTER  XII.    EFFICIENCY  AND  WAGES;  PIECE 

WORK  293 

CHAPTER  XIII.  EFFICIENCY  AND  WAGES;  THE 
PREMIUM  AND  CONTRACT 
PLANS 325    . 

CHAPTER  XIV.    EFFICIENCY  AND  WAGES;  THE 

STUDY  OF  UNIT  TIMES 355 

CHAPTER  XV.    EFFICIENCY    AND    WAGES;    THE 

TASK  PRINCIPLE 379 

CHAPTER  XVI.  RELATIONS  BETWEEN  EM- 
PLOYER AND  EMPLOYED 407 

CHAPTER  XVII.  SALESMANSHIP  AND  THE  SELL- 
ING DEPARTMENT 437 

CHAPTER  XVIII.    ADVERTISING  467 


In  this  presentation  of  the  subject  of  business 
organization  the  aim  has  been  to  lay  stress  on 
fundamental  principles  and  to  avoid  as  far  as  pos- 
sible a  discussion  of  such  details  as  would  prove 
incapable  of  broad  application  in  business. 


BUSINESS  PRINCIPLES  AND 
ORGANIZATION 


BUSINESS  PRINCIPLES  AND 
ORGANIZATION 


CHAPTER  I. 


HISTORICAL  SURVEY  OF  FORMS  OF  INDUS- 
TRIAL ORGANIZATION. 

I.    The  Household  System. 

The  needs  of  men  have  furnished  the  mainspring 
of  all  industrial  activities  since  the  beginning  of 
time.  To  supply  the  primitive  wants  of  food,  shelter 
and  raiment  our  most  distant  forebears  were  obliged 
to  bestir  themselves,  lest  they  drop  out  in  the  strug- 
gle for  existence.  As  man  develops,  his  wants  grow 
in  number,  variety  and  refinement.  The  hut  that 
satisfied  the  savage  gives  way  to  a  large  substantial 
building  of  many  rooms,  with  ample  provision  for 
light,  heat  and  ventilation.  Civilized  man  no  longer 
gives  thought  alone  to  his  physical  being,  but  unfolds 
an  infinite  series  of  mental  and  spiritual  wants  which 
he  bends  his  energies  to  satisfying. 

Various  and  complex  as  are  the  wants  of  man- 
kind, the  different  ways  and  arrangements  which 
have  been  made  to  supply  them  are  almost  as  nmner- 
ous  and  as  difficult  to  analyze.  It  is  true  that  primi- 
tive wants,  as  supplied  in  primitive  times,  called 

u 


10  BUSINESS  PKINCIPLBS 

forth  comparatively  simple  industrial  operations,  but 
as  the  needs  of  the  human  family  became  more  com- 
plex, and  as  the  members  of  that  family  came  to 
recognize  that  all  were  not  equally  efficient,  that 
some  could  supply  certain  wants  better  than  others, 
a  differentiation  took  place  which  has  been  going 
on  steadily  from  the  earliest  times. 

Properly  speaking,  perhaps  the  simplest  form  of 
industrial  organization  was  that  which  was  borrowed 
from  the  animals.  The  foxes  of  the  earth  have  holes, 
the  birds  of  the  air  have  nests,  which,  presumably, 
each  constructed  for  itself.  Since,  however,  even  in 
the  animal  kingdom,  many  species  cooperate  or  work 
together,  in  large  groups,  or  families,  such  as  bees, 
ants,  and  beavers,  in  constructing  homes,  dams,  and 
so  forth,  the  simplest  recognizable  type  of  organi- 
zation is  that  of  the  family,  known  as  Housework, 
or  Domestic  Work.  This  comprises  production,  in 
or  around  the  house,  for  members  of  the  household, 
from  raw  materials  furnished  by  the  house.  That 
production  of  this  type  should  have  existed  in  the 
earliest  times  and  among  primitive  families,  seems 
obvious.  That  it  exists  to-day,  and  is  seen  wherever 
a  farmer  or  a  gardener  raises  vegetables  or  chickens 
or  eggs  or  dairy  products  for  his  own  table,  seems 
equally  clear. 

That  this  system  of  production,  however,  should 
have  remained  for  a  long  time  the  basis  of  immense 
industrial  activity  throughout  a  great  part  of  the 
civilized  world,  seems  hard  to  believe.  Yet  the  great 
Greek  and  Roman  estates,  worked  sometimes  by 
himdreds  of  slaves,  were  practically  household  com- 
munities.    The    villas    and   manors    and    colonies 


HISTORICAL  SURVEY  13 

founded  by  the  Romans  were  almost  entirely  self- 
sufficing  household  industries.  The  feudal  estates 
of  the  middle  ages  were  organized  on  the  same  basis. 

Primarily,  the  Housework  System  does  not  in- 
volve the  exchange  of  products;  each  household,  or 
family,  is  supposed  to  turn  out  products  made  en- 
tirely of  its  own  raw  materials,  intended  entirely  for 
its  own  consumption.  Nevertheless,  as  Adam  Smith 
notices,  from  the  day  on  which  the  first  savage  tribe 
discovered  that  it  had  more  bows  and  arrows  than  it 
needed,  and  not  enough  pottery,  while  a  neighboring 
tribe  was  over-supplied  with  pottery  but  lacking  in 
weapons,  exchange  of  products  to  a  greater  or  less 
extent  has  taken  place.  The  most  primitive  races 
of  Africa  exchange  basket- ware  for  pearls,  etc.  The 
Navajo  Indians  weave  wonderful  rugs,  and  the  Moki 
make  baskets,  which  they  expect  to  exchange  for 
things  of  which  they  have  greater  need.  Thus  the 
housework  of  antiquity  and  of  the  middle  ages  often 
developed  some  sort  of  exchange. 

In  the  tenth  century  the  stewards  of  Charle- 
magne's estates  were  directed  to  exchange  seeds  and 
other  articles  with  neighboring  estates,  the  advan- 
tages of  such  an  arrangement  being  obvious.  It 
should  be  noted  that  the  moment  when  the  element 
of  exchange  between  different  households  begins  to 
take  place,  the  seeds  of  a  change  in  the  industrial 
system  of  production  are  planted.  We  shall  have 
occasion  to  revert  to  this  phase  of  the  subject 
later  on. 

The  next  stage  in  the  evolution  of  industrial  or- 
ganization is  known  as  the  Help  or  Hire  System.  This 
implies  that  the  household  hires  an  outsider,  as  an 


14  BUSINESS  PRINCIPLES 

industrial  worker,  giving  him  board,  and  perhaps 
wages,  in  pay  for  his  services.  A  modern  example  is 
the  case  of  seamstresses  and  domestic  servants  in 
general.  This  primitive  wage  work  system  is  not 
clearly  defined,  as  it  may  take  many  forms.  It  may 
be  seen  in  the  case  of  the  blacksmith  or  miller,  to 
whom  the  household  takes  iron  or  grain  and  pays 
something  for  getting  it  worked  up.  For  many  years 
the  traveling  tailor  made  his  monthy  or  bi-monthly 
round  among  the  scattered  settlements  of  our  fron- 
tiers. Even  to-day  the  itinerant  tinker  goes  the 
rounds  in  agricultural  communities,  mending  pots 
and  pans.  The  assistance  given  to  our  Western 
farmers  at  '* harvest  time,"  usually  temporary  in  its 
nature,  represents  a  survival  of  the  Help  or  Hire 
system. 

In  its  essence,  however,  the  Help  system  is  an 
intermediate  and  transitorial  form.  It  is  an  ap- 
pendage, as  it  were,  to  the  fundamental  family 
group  organization.  The  hireling  is  an  outsider, 
brought  in  to  help  out  the  productive  activities  of  the 
household.  Gradually  the  household  enlarges  its 
activities,  and  requires  skilled  assistance  in  a  wider 
range  of  work.  The  outside  workman  specializes  in 
one  line,  and  performs  his  services  for  a  larger  num- 
ber of  families.  The  consumer  goes  to  the  work- 
man, rather  than  the  workman  to  the  consumer. 
Thus  settled  trades  arise. 

II.    The  Handicraft  System. 

What  circumstances  gave  rise  to  the  Handicraft 
or  Gild  system,  it  is  more  easy  to  imagine  than  to 


HISTOEICAL  SURVEY  15 

prove  historically.  It  is  not  difficult  to  see  that  in 
the  Housework  System  some  of  the  members  of  the 
industrial  force  would  prove  themselves  more  adept 
in  certain  occupations  than  in  others.  It  is  also 
natural  to  assume  that,  even  though  the  different 
operations  were  parceled  out  originally  to  members 
of  a  household  indiscriminately  and  without  regard 
for  the  peculiar  tastes  and  abilities  of  certain  mem- 
bers along  certain  lines,  nevertheless  if  each  member 
was  kept  for  a  long  time  at  one  particular  task,  he 
would  become  more  skilled  at  that  task  than  at  any 
other.  This  assiunption,  to  be  sure,  holds  true  only 
for  a  household  so  large  that  one  task  would  keep  a 
man  busy  a  large  part  of  the  time.  This  condition 
was  fulfilled  on  the  large  estates  in  Greek  and  Roman 
times;  that  many  of  the  workers  on  these  estates 
became  skilled  in  certain  trades  or  occupations,  is  a 
well-known  fact.  The  father  of  the  poet  Horace 
was  a  shoemaker.  The  Handicraft  System  did  not 
arise  in  ancient  times,  however,  for  two  reasons. 
Manual  or  physical  labor  in  those  days  was  regarded 
with  reproach  and  disdain,  so  that  no  man  who  was 
free  cared  to  have  his  name  associated  with  any 
gainful  occupation.  The  second  reason  flows  from 
the  first;  as  those  who  were  free  could  not  or  would 
not  work,  while  those  who  were  not  free  were  obliged 
to  do  so,  the  skilled  artisans  of  antiquity  were  all 
slaves;  they  had  no  control  over  the  products  of  their 
own  labor. 

This  state  of  affairs,  representing  essentially  the 
Housework  System  of  organization,  prevailed 
throughout  a  large  part  of  what  is  known  as  the  dark 
ages.    The  skilled  craftsmen  on  feudal  estates  were 


16  BUSINESS  PEINCIPLES 

not  free  to  come  and  go  as  they  pleased.  Grad- 
ually, however,  a  change  began  to  take  place  in  the 
legal  position  of  those  dependent  on  feudal  lords. 
The  change  from  slavery  to  independence  passed 
through  many  stages,  and  fills  the  history  of  hun- 
dreds of  years.  It  cannot  be  described  here  in  detail. 
A  common  case  is  that  of  the  worker  who  would  buy 
his  freedom  from  his  over-lord;  or  he  might  buy  his 
freedom  for  a  term  of  years,  and  forget  to  come 
back.  In  whatever  way  it  took  place,  it  should  be 
noted  that  the  freedom  of  the  worker  was  essential 
to  the  growth  of  the  Handicraft  or  Gild  System,  for 
the  handicraftsman  was  a  small  capitalist  with  his 
own  tools,  who  worked  for  such  customers  as  needed 
his  services. 

Many  other  factors  besides  that  of  personal  free- 
dom on  the  part  of  the  craftsman  contributed  to  the 
growth  of  the  Handicraft  System.  Among  these 
might  be  mentioned  the  growth  of  towns,  and  the 
rise  of  inter-municipal  communication  and  com- 
merce. The  causes  given  for  the  growth  of  towns 
are  numerous  and  interesting,  but  cannot  be  consid- 
ered here.  Some  writers  contend  that  towns  were 
built  originally  for  purposes  of  defense,  as  a  place 
where  the  inhabitants  of  the  surrounding  country 
could  barricade  themselves  in  case  of  invasion. 
Others  maintain  that  towns  were  originally  market 
places,  where  the  neighboring  farmers  met  on  cer- 
tain days  or  at  certain  fixed  periods,  to  exchange 
products.  Certain  of  these  market  or  fair  towns 
attained  more  than  local  reputation;  they  attracted 
traders  from  distant  places,  and  even  from  other 
countries.    However  it  may  have  arisen,  the  town 


HISTOEICAL  SURVEY  17 

furnished  a  natural  meeting  place  for  artisans. 
Here  they  could  come  in  contact  with  their  cus- 
tomers, and  ply  their  trade.  Moreover,  as  many 
craftsmen  along  a  single  line  of  work  would  natu- 
rally come  together  in  this  way,  the  growth  of  some 
sort  of  esprit  de  corps  among  them  was  inevitable 
Thus  arose  the  guild. 

Before  considering  the  gild  and  its  relations  to 
the  artisans,  an  understanding  of  the  economic 
status  of  the  handicraftsman  is  necessary.  He  was 
a  combination  of  skilled  workman,  capitalist,  em- 
ployer and  merchant.  Often  he  owned  the  ground 
on  which  his  workshop  was  located,  in  which  case 
he  was  also  a  landlord.  As  a  capitalist,  he  owned  at 
least  his  own  tools.  At  first  it  was  usual  for  the  cus- 
tomer to  furnish  the  raw  material,  as  he  would  grow 
or  raise  it  himself.  The  near-by  farmers  could  better 
find  wool  to  be  woven  or  hides  to  be  tanned  than  the 
craftsman  could.  Gradually,  however,  it  became 
convenient  for  the  artisan  to  keep  on  hand  supplies 
of  raw  material.  Many  of  his  customers  who  wanted 
cloth  did  not  raise  their  own  wool;  and  as  the  num- 
ber of  trades  increased,  new  and  varied  products 
were  turned  out,  calling  for  supplies  of  raw  material 
that  only  the  makers  of  these  articles  knew  how  to 
get.  At  length  the  handicraftsman  emerges  as  an 
independent  industrial  force,  no  longer  an  appendage 
or  adjunct  to  the  Household  System.  He  occupies 
his  own  house;  he  purchases  his  raw  materials  in 
the  market;  he  works  up  the  raw  material  in  his 
own  home  with  his  own  tools;  and  he  sells  the  fin- 
ished product  to  the  consumer  at  his  own  shop  or  in 
the  open  market.    It  should  be  noted,  however,  that 


18  BUSINESS  PKINCIPLES 

the  system  is  one  of  limited  or  very  closely  regu- 
lated production;  the  artisan  produces  only  upon 
order  for  a  special  customer,  or  at  most  for  weekly 
sale  in  a  limited  local  market. 

In  course  of  time  the  handicraftsman  often  found 
that  he  had  more  work  on  hand  than  he  could  turn 
out  alone  and  unaided.  In  that  case  he  would  take 
an  apprentice  or  journeyman  into  his  home  to  help. 
The  apprentice  usually  served  a  number  of  years  for 
little  or  no  pay,  for  the  privilege  of  learning  the 
trade.  At  the  end  of  his  years  of  service  he  might 
set  up  for  himself,  as  a  master  workman;  or  if  pre- 
vented from  lack  of  capital  or  other  reasons  from 
doing  so,  he  usually  became  a  journeyman,  working 
for  a  master  craftsman  at  fixed  wages.  When  he 
had  mastered  all  the  details  of  the  trade,  he  might 
set  up  for  himself  as  a  master. 

in.    The  Guilds. 

The  coming  together  of  craftsmen  in  certain  lines 
of  work  led  them  to  unite,  probably  at  first  merely 
from  social  and  religious  motives.  As  trade  and  com- 
merce grew,  and  more  and  more  workmen  flocked  to 
the  towns,  stronger  motives  impelled  the  formation 
of  guilds;  while  at  the  same  time  these  organizations 
grew  more  and  more  exclusive.  Those  who  were 
already  established  naturally  had  little  desire  to 
meet  competition  from  the  newcomers.  They  had 
an  object  also  in  preventing  too  many  of  the  appren- 
tices or  journeymen  from  becoming  full  masters.  As 
a  result,  the  guilds  both  strengthened  their  power 
and  influence  and  stiffened  up  the  entrance  require- 


HISTORICAL  SURVEY  19 

ments.  The  necessary  years  of  apprenticesMp  were 
increased,  as  well  as  the  length  of  time  required  to  be 
spent  as  journeymen.  The  making  of  a  *' master- 
piece/' at  first  intended  merely  to  prevent  unskilled 
workmen  from  entering  the  gild,  gradually  grew 
more  and  more  burdensome,  until  at  length,  in  many 
cases,  a  masterpiece  that  would  answer  all  require- 
ments entailed  many  years  of  labor  and  a  heavy 
expenditure  of  money.  In  the  same  way  the 
entrance  fee,  at  first  a  mere  nominal  sum,  in  some 
cases  grew  so  large  as  to  prevent  any  but  wealthy 
journeymen  from  entering.  Oftentimes  entrance 
into  the  gild  was  made  hereditary.  So  that,  in  the 
end,  there  arose  a  class  of  journeymen  who  could 
never  hope  to  be  masters.  The  rise  of  this  class  of 
journeymen,  working  regularly  for  wages,  signalizes, 
in  the  sixteenth  and  seventeenth  centuries,  the  first 
beginnings  of  the  labor  problem. 

It  may  be  well  to  pause  for  a  moment  to  notice 
the  aims  and  objects  of  the  gilds,  both  because  they 
represent  a  definite  stage  in  the  historical  develop- 
ment of  industrial  organization,  and  because  in  many 
cases  a  close  analogy  can  be  traced  between  the  aims 
of  the  gild  and  those  of  our  modern  labor  union. 
The  chief  object  of  craft  gild  regulations  can  be 
stated  briefly;  it  was  to  secure  and  maintain  an 
approximate  equality  and  permanence  of  subsistence 
by  the  exclusion  or  limitation  of  competition.  This 
meant  that  each  guild  must,  so  far  as  it  was  able, 
secure  in  the  immediate  town  and  neighborhood,  a 
monopoly  of  production  and  sale  of  its  particular 
product.  To  secure  a  monopoly  of  the  town  market 
— a  thing  which  would  be  impossible  now — was  com- 


20  BUSINESS  PRINCIPLES 

paratively  easy  in  the  middle  ages.  In  those  days, 
town  oflScials  were  regularly  appointed  to  inspect 
the  quality  of  everything  offered  for  sale.  If  the 
town  inspector  could  shift  the  responsibility  for  the 
quality  of  any  line  of  products  on  the  officers  of  the 
gild,  not  only  was  a  great  part  of  his  time  and  labor 
saved,  but  the  inspection,  being  in  the  hands  of  men 
particularly  well  equipped  to  judge  of  the  quality 
of  the  goods,  was  much  more  thoroughly  done. 

Having  secured  a  monopoly  of  the  town  market, 
the  gilds  were  in  a  position  to  prevent  anyone  from 
setting  up  as  an  independent  master  without  first 
joining  their  body.  The  next  move  was  to  prevent 
competition  in  the  neighborhood.  This  was  accomp- 
lished sometimes  by  a  direct  prohibition  of  manu- 
facture in  the  surrounding  country.  The  same  result 
could  frequently  be  secured  by  withholding  the  raw 
material  for  such  manufacture,  or  by  closely  guard- 
ing trade  secrets.  An  important  function  of  the  offi- 
cers of  each  gild  was  to  keep  the  lines  of  demarca- 
tion between  each  craft  sharply  drawn.  Thus  if  the 
makers  of  sword  handles  were  to  take  up  the  manu- 
facture of  blades,  competition,  injurious  to  the  craft 
of  blade  makers  would  arise.  The  blending  of  one 
trade  with  another  is  to-day  a  fertile  source  of  dis- 
pute among  labor  unions,  as  was  evidenced  recently 
in  the  Chicago  Building  Trades. 

Permanence  of  subsistence  for  members  of  a  craft 
was  sought  by  regulating  production.  As  we  have 
seen,  many  obstacles  were  put  in  the  way  of  entrance 
to  the  gild,  so  that  oftentimes  it  was  impossible  for 
any  but  a  son  or  nephew  of  a  master  to  enter.  The 
object  sought  was  to  prevent  the  cheapening  of  the 


HISTOEICAL  SURVEY  j» 

article  from  overproduction.  It  was  seen  in  time 
that  overproduction  was  not  dependent  only  on  the 
number  of  masters;  it  might  arise  from  a  limited 
number  of  masters  employing  a  large  number  of 
apprentices  or  journeymen.  A  number  of  regula- 
tions, therefore,  were  aimed  at  restricting  or  regu- 
lating in  some  way,  the  amount  of  the  product. 
Sometimes  each  master  was  allowed  to  make  only  so 
much  per  week,  or  to  work  only  a  certain  number 
of  hours  per  day.  Sometimes  the  amount  he  might 
pay  out  in  wages  was  restricted.  On  the  whole,  the 
aims  and  methods,  and  even  the  regulations  of  many 
of  the  medieval  gilds,  remind  us  of  the  ideals 
of  certain  modern  labor  unions — ^particularly  the 
restriction  of  output,  in  order  to  make  more  work. 

Together  with  regulations  aimed  to  keep  up  the 
standard  of  living  among  craftsmen,  there  were 
others  intended  to  secure,  in  a  measure  at  least,  an 
equality  of  earnings.  The  same  thing  is  seen  in  the 
"minimum  wage'*  principle  among  labor  unions  of 
to-day.  It  was  not  intended  to  allow  particularly 
skilled  or  influential  craftsmen  to  put  forth  their 
best  efforts,  to  the  detriment  of  the  less  skilled.  The 
gild  took  care  of  this,  partly  by  restricting  each 
master's  output  or  by  limiting  the  number  of  men 
he  might  employ  to  help  him,  and  partly  by  regu- 
lating the  supply  of  raw  materials  and  the  conditions 
under  which  the  finished  product  was  sold.  If  pos- 
sible, no  craftsman  was  allowed  to  secure  an  advan- 
tage over  another  by  buying  his  raw  materials 
cheaper.  Supplies  that  came  through  the  town  were 
usually  bargained  for  by  the  gild  as  a  whole;  and 
all  were  allowed  to  participate  in  whatever  bargain 


22  BUSINESS  PRINCIPLES 

was  made.  Sometimes  the  guild  as  a  body  undertook 
the  entire  task  of  supplying  raw  materials  to  its 
members,  particularly  in  cases  where  the  raw  prod- 
uct had  to  be  imported  from  a  distance.  Raw  silk, 
for  example,  usually  had  to  be  imported  from  some 
foreign  country.  The  price  paid  by  masters  for  raw 
materials  was  usually  fixed  by  the  gild,  under  what- 
ever arrangement  they  were  bought,  and  regulations 
frequently  limited  the  quantity  purchasable  by  any 
master.  Another  means  of  securing  equality  among 
members  of  the  gild  is  seen  in  its  policy  in  regard 
to  labor-saving  improvements.  Like  modern  labor 
unions,  the  gilds  were  not,  on  the  whole,  favorably 
disposed  toward  new  inventions.  They  disliked 
change.  Their  policy  was  either  to  suppress  labor- 
saving  improvements  altogether,  or  to  make  them 
accessible  to  all  members  of  the  gild.  Thus  if  an 
invention  was  of  such  a  nature  that  it  required  a 
larger  outlay  of  capital  than  the  average  craftsman 
could  command,  the  gild  often  made  it  a  point  to 
make  the  necessary  investment  and  to  put  the  new 
invention  or  process  at  the  disposal  of  all.  Dye- 
works,  for  example,  were  usually  owned  by  the  gild. 
The  last  set  of  regulations  intended  to  secure 
equality  among  craftsmen  had  to  do  with  the  sale  of 
the  product.  In  these  days  of  freedom  of  commerce 
and  freedom  of  contract,  it  is  difficult -to  imagine  the 
restrictions  to  which  the  most  ordinary  processes  of 
barter  and  sale  were  once  subjected.  In  the  height 
of  their  power,  the  gilds  frequently  gained  entire 
control  of  the  town  government.  Restrictions  as  to 
the  time,  the  place,  and  the  manner  of  selling  prod- 
ucts were  almost  always  imposed,  sometimes  by  the 


HISTORICAL  SURVEY  23 

town,  sometimes  by  the  gild.  For  example,  certain 
things  could  be  sold  only  in  the  afternoon,  and  could 
be  sold  only  from  a  certain  place  in  the  market;  the 
seller  could  display  them  on  booths,  but  he  must  not 
rise  to  meet  a  prospective  customer.  The  price  to 
be  charged  was  almost  always  fixed.  Rules  pro- 
hibited one  master  from  trying  to  entice  a  customer 
away  from  another.  A  customer  who  was  dissatis- 
fied could  not  take  a  piece  of  work  half  finished  away 
from  one  master  and  give  it  to  another.  Regulations 
applied  also  to  the  employment  of  journeymen.  The 
labor  market  was  open  only  at  a  certain  time.  No 
journeyman  could  get  employment,  if  discharged, 
without  a  recommendation. 

The  building  up  of  this  vast  system  of  rules  and 
regulations  shows  what  a  powerful  bulwark  the 
Gild  System  was  erecting  to  shield  itself  from  in- 
fluences that  were  making  for  its  downfall.  For  a 
long  time  ever3d:hing  was  in  its  favor,  the  economy 
of  the  middle  ages  was  averse  to  change.  Popula- 
tion, production,  and  the  relations  of  different  classes 
of  the  community  to  each  other  were  fixed  and  sta- 
tionary. The  municipal  government,  and  sometimes 
even  the  national  government,  came  in  time  to  recog- 
nize the  gild  system,  and  passed  laws  to  the  effect 
that  all  the  craftsmen  in  a  town  or  in  all  towns  must 
register  in  some  guild.  To  the  national  government 
the  system  gave  aid  in  levying  taxes;  to  the  local 
government  it  gave  aid  in  inspection  of  products. 
Yet  the  very  fact  that  the  gilds  found  it  necessary 
to  strengthen  the  shell  of  their  system  by  such  power- 
ful supports  gives  evidence  that  it  was  powerfully 
assailed;  and  in  the  end,  the  factors  making  for 


24  BUSINESS  PRINCIPLES 

its  destruction  proved  stronger  than  the  bulwarks 
thrown  up  to  keep  it  intact. 

The  principle  of  the  Gild  Handicraft  System 
was  preserved  only  so  long  as  the  members  of  the 
gild  remained  independent  capitalists,  approxi- 
mately equal  in  wealth  and  social  standing.  The  at- 
tempts of  the  gild  to  secure  a  monopoly  of  produc- 
tion and  of  marketing  within  its  area  of  influence, 
and  to  confine  membership  to  a  select  few  whose 
right  to  practice  the  trade  was  inherited,  could  not 
remain  forever  successful.  The  growth  of  a  mass  of 
workmen  who  could  no  longer  look  forward  to  be- 
coming independent  members  of  the  gild  and  to 
participate  in  its  benefits  led  inevitably  to  revolt, 
defiance,  and  competition.  New  industries  started 
up  wherever  they  could,  in  defiance  of  the  old  plants. 
More  important,  however,  than  these  attacks  from 
without  were  the  disintegrating  forces  that  were 
pulling  down  the  Gild  system  from  within.  As  all 
men  are  not  created  free  and  equal  so  far  as  brains, 
energy,  skill,  thrift,  and  enterprise  are  concerned, 
even  with  equal  opportunities  some  craftsmen  be- 
came more  successful  and  amassed  more  capital  than 
others.  This  capital  naturally  began  to  seek  oppor- 
tunities for  investment,  which  it  could  not  very  well 
find  within  the  limits  of  the  old  system.  Moreover, 
wherever  a  group  of  closely  allied  crafts  were  found 
together,  it  usually  happened  that  one  was  in  a  posi- 
tion to  dominate  the  rest.  This  was  particularly  true 
in  the  textile  industries.  Along  with  the  division  of 
employments,  which  gave  rise  to  crafts  in  larger  and 
larger  numbers,  there  had  been  a  gradual  widening 
of  the  area  from  which  raw  materials  were  collected 


HISTOEICAL  SUEVEY  25 

and  a  similar  widening  of  the  area  over  which  fin- 
ished products  were  distributed.  In  this  way  the 
craftsmen  at  each  end  of  the  chain  might  become 
merchants.  At  either  end  he  might  become  an  em- 
ployer of  members  of  the  other  crafts.  The  master 
who  was  occupied  with  the  finishing  processes  would 
wish  to  be  sure  of  a  supply  of  material;  if  engaged  in 
working  up  raw  material  at  the  beginning  of  the 
chain  he  would  desire  to  secure  a  market  for  his 
wares.  This  he  could  best  make  certain  of  by  em- 
ploying members  of  the  other  crafts.  The  merchant 
craftsman  would  naturally  be  the  most  independent, 
the  best  provided  with  capital,  and  the  best  informed, 
because  of  his  connection  with  the  wide  area  trading 
at  one  end  or  the  other  of  manufacture.  The  rise  of 
the  capitalist-merchant-craftsman-employer,  who  be- 
cause of  his  dominant  position  furnishes  other  crafts- 
men with  raw  material  and  regularly  takes  the  fin- 
ished product  from  them,  marks  the  beginning  of  the 
downfall  of  the  Gild  System. 

rV.    The  Domestic  System. 

As  we  have  seen,  the  predominance  over  the 
others  of  those  craftsmen  who  exercised  chiefly  the 
trading  function,  broke  the  shell  of  the  Gild  Sys- 
tem. Oftentimes  within  a  single  gild  a  select  body 
of  wealthier  members  came  to  exercise  the  trading 
function,  while  those  less  fortunate  remained  de- 
pendent craftsmen.  Thus  the  growth  of  capital  in 
the  crafts  enabled  wealthier  members  to  become 
traders,  and  to  use  their  surplus  capital  in  employ- 
ing poorer  members.    In  the  Domestic  System  we 


26  BUSINESS  PEINCIPLES 

find  for  the  first  time  a  line  drawn  between  the  capi- 
talist-employer and  the  workman.  In  the  Handi- 
craft System  the  employer  was  also  a  workman;  in 
the  Domestic  System  the  employer  and  workman  are 
differentiated.  There  is  another  point  that  distin- 
guishes the  Domestic  System  from  all  earlier  forms 
of  business  organization;  it  is  the  method  of  sale  of 
the  finished  product.  In  the  Help  or  Hire  System, 
it  will  be  remembered,  there  is  no  selling  of  the  prod- 
uct; the  employer  consumes  it.  In  the  Handicraft 
System,  where  articles  are  made  only  to  order  or  for 
a  small  weekly  market,  the  product  is  sold  directly 
by  the  workman  to  the  consumer.  In  the  Domestic 
System,  there  is  a  wider  market,  with  a  larger  pro- 
duction and  a  more  extended  organization.  The  man 
who  makes  the  product  no  longer  sells  it  directly  to 
him  who  consumes  it;  the  individual  workman  is  no 
longer  able  to  control  the  means  or  to  devise  the 
machinery  for  securing  the  raw  material  or  for  plac- 
ing the  product  in  the  larger  market.  The  capitalist, 
the  merchant-trader-employer,  alone  can  do  this. 

It  should  be  noted  that  in  the  Domestic  System, 
so-called,  a  large  part  of  the  shell  of  the  Handicraft- 
Gild  System  remains  apparently  imdisturbed.  The 
workman,  as  before,  continues  to  work  in  his  own 
home  or  shop,  with  the  aid  of  his  family  and  often  in 
connection  with  some  agricultural  activity;  as  before, 
he  hires  journeymen  and  trains  apprentices;  as  be- 
fore, he  belongs  to  a  gild,  and  obeys  its  rules  and 
regulations  and  fails  to  see  the  Gild  System  proper 
has  broken  down.  He  is  dependent  on  a  capitalist- 
employer,  who  takes  his  finished  product  and  markets 
it  to  the  consumer.    In  some  few  cases  he  buys,  or 


HISTORICAL  SURVEY  27 

raises  perhaps,  the  raw  material;  but  usually  the 
same  capitalist  who  disposes  of  the  finished  product 
can  himself  buy  the  raw  material  in  larger  quantities 
and  to  better  advantage.  In  fact,  the  system  is  often 
termed  the  Commission  System,  because  it  was 
usually  customary  for  the  capitalist-employer  to  pay 
the  workman  a  commission.  Oftentimes  the  work  to 
be  done  by  each  craftsman  was  parceled  out  each  day 
or  each  week  in  advance,  and  the  capitalist-employer 
hired  a  ** runner,''  who  delivered  the  raw  material 
and  collected  the  finished  product  from  door  to  door. 
We  have  seen  that  the  transition  from  the  Gild 
System  to  the  Domestic  System  was  gradual;  in  fact, 
almost  imperceptible.  This  was  due,  in  large  part, 
because  between  the  two  systems  there  was  no  differ- 
ence in  the  methods  of  production.  The  difference 
consisted  in  the  area  over  which  the  products  were 
distributed,  and  the  general  conditions  of  marketing 
the  products.  In  the  same  industry,  and  even  in  the 
same  town,  the  two  systems  existed  more  or  less 
amicably  side  by  side,  and  there  were  few  outward 
signs  by  which  one  could  tell  the  difference  between 
them.  In  Paris,  in  1712,  we  find  the  silk  gild  ac- 
counts recording  three  different  kinds  of  master 
craftsmen,  thus: 

1.  Master  merchants — These  were  the  members 
of  the  guild  who  had  gradually  absorbed  the  trading 
function,  and  who  as  gradually  had  given  up  the 
actual  work  of  production  on  their  own  premises. 

2.  Masters  working  on  their  own  account. 

3.  Masters  working  for  master  merchants. 
These  latter  had  sunk  to  a  subordinate  position, 

and  together  with  the  master  merchants  comprised 


28  BUSINESS  PRINCIPLES 

the  Domestic  System.  The  master  merchants  no 
longer  kept  a  loom  and  a  workroom  in  their  own 
houses,  but  they  furnished  raw  silk,  gold  threads, 
and  designs  to  the  subordinate  workmen,  who  were 
paid  by  the  piece  for  their  efforts.  The  masters  of 
the  second  class  were  the  remnants  of  the  old  Gild 
Handicraft  System.  They  bought  their  own  raw 
material,  worked  it  up  themselves,  and  sold  the  prod- 
uct direct  to  the  consumer.  Their  numbers,  how- 
ever, even  then,  were  steadily  decreasing.  They 
were  being  steadily  forced  by  the  economic  trend  of 
the  time,  by  their  own  necessity,  and  even  by  gild 
rules  and  regulations,  to  join  the  Domestic  System, 
either  as  employers  or  as  employes. 

The  independent  masters  who  could  forge  ahead 
and  accumulate  capital  were  naturally  eager  to  rise 
above  their  fellows,  to  invest  their  capital  in  supply- 
ing work  for  the  less  fortunate,  and  thus  to  enter  the 
favored  class  of  master  merchants.  The  less  fortu- 
nate might  find  that  they  had  lost  customers  or  favor; 
they  might  find  their  suply  of  capital  insufficient  to 
keep  them  stocked  with  raw  materials;  or  they  might 
find  themselves  confronted  by  guild  regulations 
which  so  seriously  hampered  their  operations  that 
they  would  be  glad  in  the  end  to  allow  others  to  fur- 
nish them  with  part  of  their  capital  and  to  pay  them 
a  fixed  wage  for  a  definite  amount  of  work. 

It  may  seem  strange  that  gild  regulations  should 
be  directed  toward  breaking  up  the  Gild  System. 
But  we  must  remember  that  the  Domestic  System 
was  built  up  entirely  within  the  shell  of  the  handi- 
craft gild  organization;  and  that,  as  the  merchant- 
traders  among  the  craftsmen  became  more  influen- 


HISTOEICAL  SUEVEY  td 

tial,  the  gild  really  passed  over  into  the  hands  of 
those  who  were  seeking  to  destroy  its  ideals.  In  the 
case  of  the  Parisian  silk  guild,  we  find  in  1731  a  regu- 
lation— evidently  passed  at  the  instigation  of  the 
master  merchants — that  masters  working  on  their 
own  account  could  not  hire  any  journeymen  or  ap- 
prentices, and  could  have  only  two  looms  in  their 
own  house.  In  1744  the  dependent  and  the  inde- 
pendent craftsmen  revolted  against  the  dominance 
of  the  master  merchants;  a  struggle  ensued,  in  the 
course  of  which  the  master  merchants  won  out.  This 
example  serves  simply  as  an  illustration  of  the  fact 
that  the  Handicraft  Gild  and  the  Domestic  System 
existed  side  by  side  for  many  years,  and  that  the 
change  from  one  to  the  other  was  often  so  gradual 
as  to  be  scarcely  perceptible. 

V.    The  Factory  System. 

The  causes  which  gave  rise  to  the  Factory  System, 
and  the  transiton  to  it  from  the  Domestic  System, 
are  difficult  to  explain  and  to  analyze,  because  the 
Factory  System  differs  fundamentally  and  radically 
from  any  systems  that  have  gone  before.  The  Fac- 
tory System  ushers  in,  really,  a  new  stage  of  civiliza- 
tion, as  well  as  a  remarkable  change  in  industrial 
ideas.  The  handicraft  and  domestic  organization 
of  industry,  we  are  accustomed  to  look  upon  as  an 
ideal  condition.  The  worker  lives  in  his  home.  He 
usually  has  a  little  piece  of  land  around  his  cottage, 
on  which  he  can  fall  back  in  emergency.  His  family 
can  help  him  at  his  work,  if  they  wish.  He  is  not 
tied  down  to  any  definite  hours.    All  in  all,  he  has  a 


30  BUSINESS  PRmCIPLES 

large  measure  of  independence.  But  as  time  went 
on,  these  idyllic  conditions  of  life  began  to  change. 
The  number  of  workers  increased;  the  price  of  labor 
declined;  the  plots  of  land  became  smaller  and 
smaller;  and  the  workman  was  tied  down  to  longer 
and  longer  hours. 

The  increase  in  competition  led  to  improvements, 
and  to  an  advance  in  technique.  The  advance  in 
technique  made  it  necessary  for  the  worker  to  give 
all  his  time  to  his  work;  he  could  not  afford  to  spoil 
his  hands  by  agricultural  toil.  Gradually  it  became 
necessary  to  put  the  women  and  children  of  the 
household  at  machines,  and  we  begin  to  hear  in- 
stances of  little  children  working  twelve  and  four- 
teen hours  a  day  at  hard  labor.  It  is  doubtful,  after 
all,  if,  at  the  time  of  Factory  System  was  inaugu- 
rated, the  conditions  of  labor  were  worse  than  those 
prevalent  under  the  Domestic  System. 

A  consideration  of  the  rise  of  the  Factory  System 
presents  two  questions,  which  will  be  considered  in 
order.  These  are:  first,  causes  for  the  change;  and 
second,  the  factors  which  differentiate  the  new  sys- 
tem from  the  old.  The  cause  of  the  change  is  con- 
nected directly  with  the  advance  in  technique,  which, 
as  we  have  already  noted,  became  necessary  with  the 
increase  of  competition  under  the  Domestic  System. 
Increasing  competition  made  it  necessary  to  econo- 
mize in  production,  and  to  apply  capital  to  the  inven- 
tion of  labor-saving  devices  or  machines  in  order  to 
substitute  mechanical  power  for  human  labor.  The 
great  inventions  which  gave  rise  to  factory  organi- 
zation of  industy  took  place  in  the  later  half  of  the 


HISTORICAL  SURVEY  81 

eighteenth  century.*  It  should  be  noted,  moreover, 
that  the  use  of  these  machines  under  the  Domestic 
System,  in  most  cases  presented  insuperable  diffi- 
culties. When  production  required  but  a  few  tools, 
and  the  processes  were  simple,  the  workman  could 
use  his  own  tools  and  implements,  and  could  carry 
on  production  on  his  own  limited  premises.  The  new 
machines  could  not  be  used  in  this  way.  They  were 
heavy,  cumbersome,  and  very  expensive;  they  were 
intended  to  be  run,  for  the  most  part,  by  means  of 
other  than  human  power.  All  these  factors  meant  a 
heavy  investment  of  capital,  and  the  gathering  to- 
gether of  many  workers  in  a  single  establishment. 

If  we  seek  for  a  definition  of  the  Factory  System, 
we  can  best  approach  the  question  by  comparing  it 
with  the  other  forms  of  industrial  organization. 
First,  a  factory  assumes  a  wide  market,  for  the 
articles  must  be  produced  in  amounts  greater  than 
would  be  needed  for  local  demand.  Next,  we  note 
that  there  must  be  a  capitalistic  employer,  and  that 
the  ownership  of  the  means  of  production  is  not  in 
the  hands  of  the  worker.  The  laborers  under  the 
Factory  System  are  employed,  in  large  nmnbers,  out- 
side of  their  own  homes.  Moreover,  the  laborers  are 
now  employed  regularly.  They  have  to  work  during 
certain  fixed  hours,  under  definite  discipline,  and  at 
wages  mutually  agreed  upon.  The  Factory  System, 
as  a  rule,  involves  several  other  features.  One  is, 
the  splitting  up  of  the  processes  of  manufacture  into 
smaller  and  simpler  elements.  We  shall  have  to  deal 
with  this  when  we  consider  division  of  labor.   Again, 

•  The  most  important  inventions  were :  Kay 's  flying  shuttle,  1738 ; 
Hargreave's  spinning  jenny,  and  Arkwright's  spinning  frame,  1764-68; 
Cartwright'»  power  loom,  1785,  and  Watt's  steam  engine,  in  the  same  year. 


88  BUSINESS  PRINCIPLES 

there  is  the  extensive  application  of  machinery  and 
power.  It  can  readily  be  seen  that  the  division  of 
the  processes  of  manufacture  necessitates  gathering 
the  workmen  together,  so  that  they  can  pass  the 
product  on  from  one  to  the  other.  Moreover,  ma- 
chinery cannot  well  be  applied  until  the  manu- 
facturing processes  have  been  split  up  into  simple 
operations. 

Some  of  the  differences  between  the  factory  and 
other  forms  of  organization  may  be  made  clearer 
by  a  consideration  of  the  advantages  and  disadvan- 
tages of  this  system  as  compared  with  others.  Some 
of  the  advantages  of  the  Domestic  System  in  its 
ideal  form,  from  the  point  of  view  of  the  laborers, 
have  already  been  mentioned.  It  is  evident  that  the 
Factory  System  could  not  have  been  started  unless 
the  time  had  come  when  a  large  body  of  workers  were 
driven  by  economic  necessity  to  give  up  their  inde- 
pendence and  work  in  a  factory.  This  prejudice 
against  the  Factory  System,  while  very  strong  at  one 
time,  has  by  now  been  practically  done  away  with. 
People  have  come  to  see  that  the  laborer  is  not  really 
worse  off  under  the  new  system.  The  factory  hand 
submits  to  having  his  hours  of  labor  fixed,  and  to 
other  restrictions  on  his  time  and  liberty,  for  his  own 
good.  The  chief  influence  of  this  form  of  prejudice 
against  the  Factory  System  was  operative  only  in 
retarding  its  growth  in  the  beginning. 

The  Domestic  System  has  an  advantage  over  a 
factory  form  of  organization,  in  that  no  great  ex- 
penditure for  initial  fixed  capital  is  necessary. 
Where  the  workman  provides  his  own  tools  and 
works  on  his  own  premises,  the  chief  elements  of 


HISTOEICAL  SURVEY  33 

expense  in  starting  an  industry  are  eliminated.  This 
factor  operates  to  the  advantage  of  the  Domestic 
System  only  in  communities  where  capital  is  scarce 
or  timid,  or  in  the  case  of  industries  where  the  risk 
is  too  great  to  attract  capital  seeking  investment. 
Another  advantage  of  the  Domestic  System  and  one 
which  for  a  long  time  operated  against  the  building 
of  factories,  is  its  flexibility.  A  factory,  once 
started,  has  to  be  kept  running  whether  times  are 
good  or  bad;  once  it  is  shut  down,  the  skilled  work- 
men drift  away,  the  machinery  and  building  deteri- 
orate, the  carefully  built-up  organization  breaks 
down.  Under  the  Domestic  System  production  can 
be  enlarged  or  diminished  almost  at  will.  The  work- 
men are  where  you  can  always  find  them,  and  dur- 
ing periods  of  dull  work  can  fall  back  on  agriculture 
or  other  pursuits. 

As  opposed  to  all  these  features  in  favor  of  the 
Domestic  System,  the  factory  must  rest  its  case 
largely  on  the  greater  productivity  of  that  form  of 
organization.  The  laborer  no  longer  works  mainly 
with  his  hands,  or  at  best  with  simple  and  primitive 
tools.  He  is  equipped  with  an  extensive  and  com- 
plex outfit  of  the  machinery  of  production.  The  re- 
sult is  that  the  productive  power  of  each  labor  unit 
is  vastly  increased.  All  the  work  is  divided  into 
the  simplest  elements;  the  mechanical  and  intel- 
lectual processes  are  separated  out,  and  each  part 
of  the  productive  operation  can  be  given  to  the  man 
who  is  best  fitted  to  perform  it.  The  Factory  Sys- 
tem employs  human  powers  of  the  most  varied  kind, 
whether  skilled  or  unskilled,  and  sets  them  to  tasks 
in  which  the  greatest  productive  results  can  be 


34  BUSINESS  PRINCIPLES 

achieved.  This  subdivision  of  labor  has  led  to  the 
application  of  machinery  to  nearly  all  processes  that 
are  capable  of  being  reduced  to  a  simple  repetition 
of  the  same  movements  or  operations.  As  products 
so  turned  out  are  all  of  a  single  pattern,  this  princi- 
ple can  be  applied  to  the  manufacture  of  only  staple 
articles  of  wide  demand.  From  the  worker's  point 
of  view,  the  lack  of  flexibility  in  the  Factory  System 
is  an  advantage;  the  fact  that  there  is  a  large  fixed 
capital  which  must  be  kept  active,  insures  more 
steady  work. 

So  marked  is  the  difference  between  the  Factory 
System  and  its  predecessors,  that  the  process  which 
brought  it  about  is  generally  called  the  Industrial 
Revolution.  It  must  not  be  understood,  however, 
that  by  revolution  we  mean  any  sudden  and  complete 
overtm-ning  of  the  old  system.  The  process  was  a 
very  gradual  one.  While  we  mark  the  date  of  the 
Industrial  Revolution  at  1760  or  thereabouts,  in  real- 
ity it  took  several  decades  for  even  the  textile  indus- 
tries to  change  completely  over.  Even  to-day  a  large 
part  of  the  silk  ribbon  industry  of  St.  Etienne, 
France,  is  organized  on  the  Domestic  System.  The 
supplanting  of  the  domestic  industry  by  a  factory 
organization  proceeded  slowly  throughout  the  nine- 
teenth century.  Even  in  England  there  are  still  a 
few  trades  like  those  of  the  chain-makers,  cutlers, 
and  glass-workers,  in  which  the  Domestic  System 
still  prevails. 

It  must  not  be  thought  that  the  forms  of  indus- 
trial organization  which  have  been  described  are 
marked  off  from  each  other  by  sharp  lines.  In  each 
case  there  have  been  survivals:  in  each  case  we  can 


HISTORICAL  SURVEY  35 

describe  only  that  form  of  enterprise  which  was  pre- 
dominant. The  Family  System  is  still  found  on  the 
frontier,  and  in  outlying  regions  that  are  cut  off 
more  or  less  from  the  rest  of  the  world.  The  Help 
or  Hire  System  survives  in  various  kinds  of  domestic 
service.  The  Handicraft  System  of  production  is 
tjrpified  in  the  cobbler,  the  custom  tailor,  or  even  the 
repair  man  who  will  make  you  a  bicycle  to  order. 
The  Domestic  System  is  found  in  many  industries 
that  are  carried  on  by  hand.  Perhaps  the  best- 
known  in  this  country  is  the  Commission  System 
in  the  ready-made  clothing  trade.  In  spite  of  these 
survivals  of  old  forms  of  organization,  modern  busi- 
ness enterprise  is  based  to  an  overwhelming  degree 
on  the  Factory  System. 

VI.    Individual,  Associated,  and  Corporate  Forms 

of  Business. 

Another  standpoint  from  which  to  view  the 
growth  of  business  forms  of  organization  is  offered 
in  the  different  ways  in  which  businesses  have  been 
owned  or  managed.  It  has  been  assumed  thus  far, 
in  the  forms  of  organization  that  have  been  con- 
sidered, that  there  was  a  single  business  man  at  the 
head  of  each.  This  assumption,  until  we  reach  the 
development  of  the  Factory  System,  would  not  be 
contrary  to  fact.  The  earlier  forms  of  business  activ- 
ity, such  as  the  Household  and  Handicraft  Systems, 
were  not  well  suited  to  the  keen  economic  struggle 
we  see  in  modern  business  life.  In  the  ownership 
and  management  of  enterprises  we  can  distinguish 
three  and  perhaps  four  stages — those  carried  on  by 
individuals,  by  partnerships,  and  by  corporations. 


36  BUSINESS  PRINCIPLES 

(1)  Strictly  speaking,  the  handicraftsman  was 
a  business  man  who  carried  on  an  independent  enter- 
prise. It  was  not,  however,  until  competition  grew 
keener,  and  production  began  to  be  carried  on  for  a 
wider  market,  that  the  true  business  man  emerged. 
We  have  seen  that  in  the  gilds  certain  members 
were  more  successful,  and  accumulated  more  capital, 
than  others.  These  in  time  came  to  be  organizers 
of  industry.  By  their  sagacity,  good  judgment, 
courage,  and  executive  ability,  they  forged  ahead, 
and  became  successful  business  men.  In  earlier 
times,  when  business  enterprises  were  conducted  on 
a  comparatively  small  scale,  it  was  not  difficult  for 
one  man  to  cope  with  the  situation  single-handed. 
As  business  enterprises  grew  in  size,  as  competition 
with  other  firms  grew  more  strenuous,  as  the  tech- 
nical processes  in  manufacture  grew  more  complex, 
as  the  marketing  of  products  involved  more  and 
more  difficult  problems,  as  the  qualities  necessary 
for  success  grew  in  number  and  oftentimes  special 
training  in  certain  lines  became  indispensable,  the 
business  man  found  it  necessary  to  associate  him- 
self with  men  who  possessed  the  training,  the  talents, 
and  the  qualities  which  he  lacked. 

(2)  The  partnership,  therefore,  is  a  form  of 
business  enterprise  intended  to  strengthen  the  one- 
man  concern.  It  frequently  happens  that  the  man 
supplied  with  capital  has  not  the  knowledge  required 
to  employ  it  successfully  in  business,  while  the  able 
business  man  may  be  ill-supplied  with  capital.  The 
union  of  capital  and  ability,  and  even  the  union  of 
various  kinds  of  ability,  tends  on  the  whole  to  add 
to  the  economic  efficiency  of  a  concern.    There  are. 


HISTORICAL  SURVEY  87 

however,  certain  disadvantages  and  certain  limita- 
tions to  partnership  enterprise.  One  decided  disad- 
vantage is  that  each  partner  is  personally  liable  to 
an  unlimited  amount  for  all  the  debts  and  obliga- 
tions of  the  concern.  Thus  each  member  may  be 
made  to  suffer  because  of  the  mistakes,  bad  judg- 
ment, or  dishonesty  of  any  of  his  associates.  There 
are  few  individuals  whose  interests  are  so  closely 
linked  together  that  each  can  place  implicit  con- 
fidence in  the  honesty  and  good  judgment  of  the 
other.  With  the  expansion  in  the  size  of  the  busi- 
ness unit,  the  same  cause  that  made  a  partnership 
an  improvement  over  the  one-man  concern,  may 
make  the  partnership  itself  unsatisfactory.  As  soon 
as  the  business  has  grown  so  large  as  to  call  for  the 
employment  of  capital  beyond  the  means  of  a  few 
partners,  a  new  form  of  business  ownership  and 
management  is  called  for.  This  need  is  met  by  the 
joint  stock  corporation. 

(3)  The  corporation  in  its  modern  form,  as 
applied  to  industrial  undertakings,  is  really  a  devel- 
opment of  the  latter  half  of  the  nineteenth  century. 
The  advantages  of  corporations  are  three-fold:  joint 
stock,  limited  liability,  and  perpetual  life.  The  joint- 
stock  principle  enables  business  enterprise  to  amass 
capital  for  a  single  undertaking  to  an  amount  prac- 
tically unlimited;  and  at  the  same  time,  it  enables 
people  of  small  means  to  share  proportionately  in  the 
profits  of  a  business,  however  large.  More  than 
that,  each  individual  stockholder  has  a  voice  in  the 
management  of  the  business,  in  proportion  to  his 
investment;  but  he  is  not  liable  for  the  debts  or  obli- 
gations of  the  concern  beyond  the  amount  of  his 


38  BUSINESS  PEINCIPLES 

investment.  This  normally  means  that,  in  case  a 
business  fails,  a  man  cannot  lose  more  than  he  has  put 
into  it.  Under  a  partnership  system  the  man  who 
invested  a  thousand  dollars  in  an  enterprise  might, 
in  time,  come  to  find  himself  legally  bound  to  pay 
debts  amounting  to  ten  thousand  dollars  or  more. 
This  limiting  of  obligations  to  the  amount  of  the 
actual  investment  removes  the  apprehension  and  dis- 
trust which  prevented  the  growth  of  large  partner- 
■  ship  concerns  with  unlimited  liability.  Another  ad- 
vantage of  the  joint-stock  principle  lies  in  the  mobil- 
ity which  it  gives  to  the  transfer  and  investment  of 
individual  capital.  The  partner  could  not  withdraw 
the  amount  he  had  invested  in  a  concern  without 
either  making  some  arrangement  with  his  fellow 
partners  or  breaking  up  the  enterprise.  The  trans- 
fer of  shares  in  a  corporation,  on  the  contrary,  has 
no  effect  upon  the  amount  of  capital  with  which  it 
carries  on  business,  and  normally  has  little  effect 
upon  its  business  policy.  The  affairs  of  a  corpora- 
tion are  conducted  by  a  majority  of  the  stockholders; 
and  normally  it  is  only  by  a  transfer  and  concentra- 
tion of  a  majority  of  the  stock  to  a  single  person  or 
interest  that  the  business  policy  of  a  corporate  con- 
cern can  be  fundamentally  affected. 

Finally,  the  corporation  has  perpetual  life.  Un- 
like the  individual,  unlike  the  partnership,  a  cor- 
porate concern  never  dies  until  the  business  is  liqui- 
dated. This  gives  it  all  the  advantages  of  perma- 
nence and  stability.  It  can  plan  for  the  future,  far 
in  advance.  As  an  example  of  this,  some  corpora- 
tions have  borrowed  funds,  by  an  issue  of  bonds, 
which  are  not  payable  for  sixty  or  even  for  a  hundred 


HISTORICAL  SURVEY  39 

years.  Permanent  improvements  can  be  undertaken, 
and  investments  made,  which  would  be  impracti- 
cable in  the  case  of  an  enterprise  destined  to  end 
with  the  life  or  disability  of  any  one  of  a  number  of 
men. 

The  corporation,  however,  is  not  perfect;  it  does 
not  solve  all  problems.  The  flexibility  and  freedom 
from  restrictions  of  this  form  of  business  under- 
taking naturally  give  scope  for  many  abuses,  which 
have  been  called  collectively  the  ''corporation  prob- 
lem." As  a  single  concrete  example,  we  may  take 
the  case  of  the  minority  stockholder  in  a  close  cor- 
poration. Let  us  suppose  that  all  the  stock  in  the 
corporation  is  owned  by  six  persons  and  that  three 
of  these  persons  succeed  in  getting  control  of  more 
than  50  per  cent  of  the  stock.  It  is  then  perfectly 
possible  for  these  stockholders  to  vote  themselves 
president,  treasurer,  and  other  officers  of  the  cor- 
poration, at  salaries  so  large  as  to  absorb  all  the 
earnings.  The  minority  stockholders  are  thus 
"frozen  out.''  It  is  true  they  may  bring  suit  against 
the  officers  for  fraudulent  practices;  but  in  many 
cases  the  fraud  is  difficult  to  prove,  and  in  practice 
the  minority  stockholders  are  usually  left  without 
redress.  The  consideration  of  this  part  of  our  sub- 
ject, since  it  belongs  more  properly  to  the  treatises 
on  corporation  finance,  and  commercial  law,  need 
not  engage  our  attention  further.  In  the  other  vol- 
umes of  this  library  will  be  found  also  a  discussion  of 
those  disadvantages  of  the  corporation  which  are 
concerned  with  the  protection  of  ''innocent  invest- 
ors,'' the  mutual  relation  of  stockholders  and  bond- 


40  BUSINESS  PEINCIPLES 

holders,  and  the  enforcement  of  real  trusteeship  on 
the  part  of  the  directors. 

Finally,  the  corporation  proverbially  **has  no 
soul."  As  against  the  public,  the  corporation  will 
often  do  what  individuals  as  such  would  shrink  from 
doing.  A  million  dollar  sugar  trust  will  have  no  hesi- 
tation in  committing  so  **raw"  and  shamless  a  fraud 
as  "short- weighting"  the  government  scales  in  the 
custom  house,  whereas  a  one-man  firm  or  a  partner- 
ship would  shrink,  at  least,  from  attempting  to  make 
money  by  so  primitive  and  unrefined  a  method  of 
cheating. 

It  is  easy  to  see  that,  in  the  case  of  an  individual, 
it  is  not  only  more  easy  to  locate  the  source  of  mis- 
doing, but  also  that  punishment  which  follows  will 
extend  beyond  a  mere  pecuniary  loss.  The  guilty 
individual  is  in  danger  of  losing  the  honor  and  re- 
spect of  the  community,  or  may  even  suffer  corporeal 
incarceration.  In  the  case  of  the  sugar  trust  fraud, 
two  months  of  diligent  investigation  by  government 
officials  have  resulted  so  far  in  proving  only  that 
some  irresponsible  underling  must  have  known  that 
something  was  going  wrong.  The  real  responsibility 
for  the  crime  has  not  been  definitely  placed,  and 
probably  never  will  be.  Examples  might  be  multi- 
plied almost  without  number;  this  one  will  suffice  to 
show  that  it  is  no  easy  task  to  raise  the  plane  of  cor- 
porate morality  to  that  of  individual  business  ethics. 

With  all  its  shortcomings,  however,  the  corpora- 
tion has  conferred  inestimable  benefits  upon  the  com- 
munity as  a  form  of  business  enterprise.  It  is  an 
efficient  and  effective  and  well-built  engine,  with 
which  the  community  carries  on  its  economic  activi- 


HISTORICAL  SURVEY  41 

ties.  Perhaps  sometimes  it  does  not  run  with  per- 
fect smoothness;  sometimes  the  different  parts  are 
not  well  oiled;  but  without  it  the  community  would 
virtually  renounce  the  most  effective  instrument  yet 
devised  for  the  most  complete  utilization  of  capital. 

What  may  perhaps  be  regarded  as  a  fourth  stage 
in  the  ownership  and  management  of  business  under- 
taking is  what  is  popularly  known  as  the  ^* Trust.'' 
A  trust  is,  briefly,  a  union  of  corporations.  In  the 
popular  mind  the  term  ** trust"  is  usually  associated 
with  monopoly  in  some  form.  We  shall  have  to 
revert  to  this  phase  of  the  question  When  we  come 
to  consider  the  advantages  of  large-scale  production 
and  of  monopoly. 

Although  the  material  in  this  chapter  is  mainly 
historical,  the  practical  value  of  the  lessons  which 
it  contains  for  everyone  who  is  anxious  to  acquire 
a  better  understanding  of  the  principles  of  business 
organization  will  at  once  occur  to  the  thinking  man. 
The  broader  fundamental  principles  of  industrial 
enterprise  should  be  made  a  basis  for  immediate, 
practical  application  to  actual  business  problems. 
In  reviewing  the  historical  forms  of  organization  it 
was  pointed  out  that  none  of  the  old  forms  has  dis- 
appeared. New  forms  have  been  added  to  the  old, 
and  have  been  applied  in  those  enterprises  for  which 
they  were  best  fitted;  but  in  each  case  there  have 
been  survivals.  Some  forms  of  business,  even  to-day, 
find  the  older  forms  the  best.  It  is  weU,  therefore, 
to  know  what  the  various  organizations  of  industry 
have  been,  how  they  have  worked,  what  forces  have 
tended  to  cause  them  to  break  down  in  certain  indus- 
tries, and  what  advantages  and  what  disadvantages, 


42  BUSINESS  PKINCIPLES 

viewed  from  the  standpoint  of  economic  life  to-day, 
apply  to  each  one.  As  we  come  to  examine  the  fac- 
tors that  make  for  success  in  different  lines  of  busi- 
ness, and  come  to  see  the  bearing  of  the  forms  which 
the  different  lines  of  enterprise  take  to  other  factors 
that  make  for  success  or  failure,  we  shall  have  occa- 
sion to  revert  to  the  history  and  principles  that  form 
the  subject  matter  of  this  chapter. 

In  conclusion,  it  should  be  noted  that  the  variety 
of  forms  in  which  business  to-day  is  carried  on  offers 
opportunity  for  a  two-fold  adaptation.  For  men  as 
well  as  enterprises  are  adapted  to  different  forms  of 
organization  under  varying  circumstances.  Men 
with  money  to  employ  profitably  are  interested  to 
know  whether,  in  view  of  their  personal  abilities, 
their  technical  training  and  knowledge,  their  ability 
to  command  capital  and  the  confidences  of  the  com- 
munity, it  is  better  for  them  to  go  into  business 
alone,  to  take  partners,  or  merely  to  buy  stock  in 
some  corporation.  If  a  man  is  a  good  manager,  a 
good  organizer,  well  grounded  in  the  principles  of 
business,  an  individual  enterprise  conducted  by  him- 
self alone  will  furnish  him  the  best  opportunity  to 
prove  his  mettle. 

As  against  the  abilities,  training,  and  opportuni- 
ties of  the  man,  the  nature  of  the  business  and  the 
conditions  surrounding  it  (many  of  which  will  be 
considered  in  later  pages)  must  be  taken  into  ac- 
count. If  large  capital  and  the  production  of  a  stable 
article  of  wide  demand  are  called  for,  the  corporate 
form  is  best.  An  individual  one-man  concern  is,  in 
general,  more  flexible,  more  easily  adaptable  to 
changing  conditions,  than  a  corporation.    A  small 


HISTORICAL  SURVEY  43 

business,  and  especially  one  that  must  meet  changes 
of  tastes  or  fashions,  is  best  conducted,  usually,  imder 
one  man's  control,  in  a  small  shop.  If  the  work  can 
be  carried  on  in  homes,  and  particularly  if  the  enter- 
prise is  so  located  that  large  masses  of  workers  can 
be  hired  at  low  rates  in  their  own  domiciles,  the 
Domestic  or  Commission  System  is  often  best. 

Above  all,  emphasis  must  be  laid  on  the  fact  that 
in  business  no  hard  and  fast  rules  can  be  laid  down. 
Success  in  business  depends  not  on  applying  rigid 
and  inflexible  dogmas,  but  in  assembling  all  the  fac- 
tors that  bear  on  a  particular  situation,  and  then  out- 
lining a  policy  based  on  a  careful  weighing  of  the 
relative  importance  of  each  factor.  He  who  would 
win  out  must  apply  the  principles  gained  by  sys- 
tematic study  with  common  sense  and  sound  judg- 
ment. 


CHAPTER  n. 

EFFICIENCY    OF    THE    WORKING    FORCE: 
DIVISION  OF  LABOR. 

Chief  among  the  advantages  to  be  gained  from  a 
study  of  the  principles  of  business  organization  is 
a  knowledge  of  those  factors  which  tend  to  increase 
the  productive  efficiency  of  business  enterprise;  for 
the  successful  business  man  is  he  who  can  arrange 
his  factors  of  production  in  such  a  manner  as  to  pro- 
duce the  greatest  net  results  at  the  lowest  cost. 
Since  the  greatest  element  in  the  expenses  of  pro- 
duction is  labor,  a  study  of  the  means  of  increasing 
the  efficiency  of  labor  and  of  combining  labor  with 
the  other  factors  of  production  in  the  most  economi- 
cal and  most  effective  way,  is  vital  for  the  proper 
understanding  of  our  subject. 

The  relation  of  labor  to  production,  and  to  busi- 
ness activity  in  general,  is  many-sided;  it  involves 
more  problems  than  can  be  even  briefly  explained  in 
a  single  chapter.  In  the  present  chapter,  therefore, 
we  shaU  first  indicate  briefly  the  nature  of  some  of 
the  problems  of  labor  that  will  be  dealt  with  more 
directly  in  later  sections;  and,  secondly,  we  shall  lay 
stress  on  those  factors  affecting  the  efficiency  of  labor 
which  are  generally  understood  to  be  comprised  in 
the  term  ** division  of  labor." 

45 


46  BUSINESS  PEINCIPLES 

When  the  Senators  and  the  members  of  the 
House  of  Representatives  begin  to  debate  on  the  de- 
sirability of  affording  tariff  protection  to  an  Ameri- 
can industry,  the  first  assumption  made  (and  one 
that  is  usually  granted  by  both  sides)  is  that  the 
** protection"  should  be  sufficient  to  cover  the  differ- 
ence in  wages  in  this  country  and  abroad.  It  is  as- 
sumed, in  other  words,  that  low  wages  make  low 
cost;  on  this  premise  the  man  who  is  paying  the 
lowest  wages  ought  either  to  be  making  the  highest 
profits  or  to  be  selling  his  goods  at  the  lowest  prices. 
The  assumption,  as  well  as  the  argument  based  on 
it,  is  so  palpably  unsound  in  theory  and  so  out  of 
accord  with  actual  facts,  that  it  is  surprising  to  find 
it  advanced  by  anyone  in  serious  debate.  The  real 
cost  of  a  laborer's  work,  from  the  employer's  point 
of  view,  is  not  measured  strictly  by  the  amount  of 
money  in  the  man's  weekly  pay  envelop;  rather  is 
it  to  be  gauged  by  the  productive  efficiency  of  that 
laborer — ^by  his  power  of  doing  efficient  work,  as 
compared  with  his  pay.  The  shrewd  business  man 
considers  two  equally  important  factors  here:  the 
amount  and  quality  of  the  work,  and  the  amount  of 
the  payment.  The  railway  president  who  receives 
$50,000  a  year  may  be  really  cheap,  because  an  in- 
ferior man  who  could  be  hired  for  one-tenth  of  that 
amount  would  tangle  up  the  road,  increase  expenses, 
and  cost  in  the  end  much  more  than  the  high-priced 
but  better  man.  So  it  is  in  the  case  of  the  ordinary 
wage-earner.  The  weaver  who  turns  out  50  yards 
of  cloth,  and  is  paid  $10  a  week,  really  costs  his  em- 
ployer more  than  the  man  who  weaves  100  yards  of 
cloth  and  receives  $15  a  week.    In  our  southern  cot- 


DIVISION  OF  LABOR  47 

ton  fields,  the  Italian  workman  has  been  preferred 
of  late  years  to  the  negro,  although  he  demands  and 
receives  higher  wages.  The  Italian  is  more  indus- 
trious, more  reliable,  more  anxious  to  do  his  work 
well — in  a  word,  more  efficient  than  the  colored  man. 
He  receives  higher  wages,  but  his  labor  costs  less. 

The  problem  before  the  employer  in  this  question 
of  labor  cost  is,  to  what  extent  will  it  be  worth  my 
while  to  employ  better  men  at  higher  wages'?  But 
this  side  of  the  problem  is  not  even  as  simple  as  that. 
It  has  repeatedly  been  proved  that  in  the  same  in- 
dustry, and  with  the  same  workmen,  an  increase  of 
wages  or  curtailment  of  the  working  hours  may  re- 
sult in  actually  lower  labor  cost  to  the  employer.  It 
frequently  happens  that  an  increase  in  wages  or  a 
reduction  in  labor  time  will  result  in  infusing  greater 
energy,  greater  ca^e,  and  greater  assiduity  on  the 
part  of  the  workmen,  and  will  result  in  greater  out- 
put. We  shall  have  occasion  later  to  give  particular 
attention  to  the  best  and  most  approved  methods  of 
increasing  the  efficiency  of  labor  by  increasing  the 
amount  and  changing  the  form  of  remuneration. 
That  there  is  often  a  true  economy  in  high  wages, 
especially  in  cases  where  a  high  grade  of  intelligence 
on  the  part  of  the  workmen  is  necessary  to  secure 
the  best  results,  is  shown  by  our  exports  of  manu- 
factures. Our  iron  and  steel  manufactures,  boots 
and  shoes,  clocks,  cash  registers,  and  sewing  ma- 
chines, which  successfully  compete  in  foreign  mar- 
kets with  the  products  of  low-priced  labor,  are  made 
with  the  highest-priced  labor  in  the  world.  These 
are  the  industries,  strange  to  say,  in  which  the  wage- 


48  BUSINESS  PKINCIPLES 

scale,  even  for  this  country  of  high  wages,  is 
markedly  higher  than  in  any  others. 

There  is  a  limit,  of  course,  to  the  economy  which 
may  be  effected  by  hiring  more  efficient  men;  a  limit 
to  the  effect  of  an  increase  of  wages  in  lowering  cost. 
Higher  wages  that  do  not  bring  correspondingly  in- 
creased efiSciency  do  indeed  mean  greater  labor  cost. 
It  is  the  task  of  the  wise  business  man  to  apply  an 
increase  of  wages  in  such  a  form  that  there  can  be 
no  doubt  as  to  the  results.  The  mere  fact,  however, 
that  goods  sell  at  low  prices,  tells  us  nothing  as  to 
the  scale  of  wages  in  an  industry.  The  cheapness  of 
a  ready-made  suit  in  a  department  store  may  be  due 
to  low-priced  labor  in  a  sweatshop;  the  cheapness  of 
an  Elgin  watch  is  not  incompatible  with  the  very 
highest  wage-scale. 

Since  the  cost  of  production  is  as  deeply  affected 
by  the  productive  capacity  of  the  laborer  as  by  the 
wages  paid,  the  problem  of  increasing  the  efficiency 
of  labor,  and  the  importance  of  giving  careful  and 
painstaking  attention  to  all  the  methods  which  tend 
to  bring  about  this  result,  cannot  be  overestimated. 
We  have  just  pointed  out  that  one  way  of  increasing 
efficiency  may  often  lie  in  an  increase  of  wages,  or 
in  a  reduction  of  the  working  hours ;  and  we  have  seen 
that  this  is  effective  only  so  far  as  it  can  be  done  in 
such  a  way  as  to  increase  the  energy  and  productivity 
of  the  laborer  to  an  extent  greater  than  that  meas- 
ured by  the  increase  of  pay  or  the  shortening  of 
hours.  In  the  peaceful  commercial  warfare  that  is 
being  waged  among  individuals  in  the  business  world, 
and  even  among  nations,  more  and  more  attention  is 
being  given  by  the  organizers  and  managers  of  in- 


DIVISION  OF  LABOE  49 

dustry,  to  the  problems  of  increasing  the  elBficiency  of 
labor.  It  may  be  noted  in  passing  that  in  this  mat- 
ter the  employer  and  employes  are  working  hand 
in  hand;  workmen  who  increase  their  productive 
powers  increase  their  own  pay,  and  secure  better 
living  conditions;  and  the  success  of  a  nation  among 
the  commercial  powers  of  the  world  is  largely  de- 
pendent upon  the  ability  of  a  nation's  working  force 
to  contribute  to  its  own  uplift  through  an  increase 
of  efficiency. 

First  of  all,  among  nations  which  have  been  most 
successful  in  developing  their  industrial  resources 
and  reaching  out  for  the  world's  commerce,  educa- 
tion has  become  more  and  more  recognized  as  a  pow- 
erful weapon.  The  old-time  prejudice  against  the 
college-trained  business  man  has  given  way  to  the 
recognition  of  his  superiority.  The  unparalleled  ad- 
vance of  German  trade  and  commerce  in  the  last 
score  of  years  has  been  long  attributed  in  large  meas- 
ure to  the  excellence  and  thoroughness  of  German 
commercial  education.  The  business  career  is  rap- 
idly acquiring,  and  ought  to  acquire,  a  recognized 
professional  standing.  Every  young  business  man 
demands  a  training  which  shall  not  only  enable  him 
to  maintain  his  place  in  the  profession,  but  one  which 
shaU  help  him  to  become  a  leader  in  raising  the  stand- 
ards of  business  efficiency  in  the  broadest  and  best 
sense  of  the  word.  To  rise  to  such  a  position  he 
must  be  able  to  look  beyond  the  routine  duties  of  his 
work  and  grasp  the  broader  principles  upon  which 
business  success  is  founded. 

At  a  time  when  many  of  our  great  business  firms 
were  in  process  of  formation,  a  young  man  who  se- 


60  BUSINESS  PRINCIPLES 

cured  a  position  in  a  thriving  business  and  grew  as 
the  business  grew,  obtained  perhaps  the  training  best 
adapted  to  the  needs  of  that  time.  The  situation  at 
present,  however,  is  essentially  different.  Not  only 
has  business  become  infinitely  complex  and  special- 
ized, but  the  far-reaching  public  relations  of  a  great 
modern  business  are  demanding  more  and  more 
qualities  of  mind  and  spirit  which  a  comprehensive 
systematic  study  of  business  in  its  broader  and  more 
fundamental  relations  is  best  calculated  to  foster. 

Education  is  adapting  itself  more  and  more  suc- 
cessfully to  the  needs  of  the  ordinary  man  in  a  work- 
aday, business  world;  technical  and  commercial 
schools  of  all  kinds  are  being  multiplied,  and  the  ex- 
perience and  material  that  have  been  collected  by  the 
great  educators  and  great  business  men  of  the  coun- 
try are  being  rapidly  extended  to  the  remotest  cor- 
ners of  the  country,  and  there  eagerly  absorbed. 

Many  of  the  problems  of  our  social  and  industrial 
life  are  being  referred  for  solution  to  that  same 
panacea,  education.  The  kernel  of  the  negro  problem 
in  our  Southland  is  seen,  by  those  who  have  given  it 
the  most  careful  attention,  to  consist  in  the  increase 
of  productive  efficiency,  through  educating  the  negro 
to  habits  of  orderly  and  reliable  work. 

We  approach  the  same  factor  from  another  side 
when  we  lay  stress  on  the  value  of  provisions  for 
securing  the  physical,  moral,  social,  and  intellectual 
advancement  of  the  workmen,  as  contributing  di- 
rectly to  an  increase  in  his  labor  efficiency.  Among 
human  beings,  the  same  laws  apply  as  among  the 
inanimate  factors  of  production.  The  finer  and  more 
highly  developed  the  machine,  the  greater  will  be  the 


DIVISION  OF  LABOB  51 

product.  The  short-sighted  employer,  as  we  have 
seen,  is  he  who  employs  only  the  ostensibly  cheapest 
labor.  Perhaps  equally  blind  to  his  own  interests 
is  he  who  fails  to  surround  his  workmen  by  an  en- 
vironment of  comfort,  cleanliness,  and  attractiveness, 
with  proper  provision  for  recreation,  social  enjoy- 
ment and  education.  Nor  can  we  believe  that  the 
increasing  stress  that  is  being  laid  by  successful  em- 
ployers on  what  is  called  sometimes  Social  Welfare 
or  Social  Betterment  work,  is  attributable  entirely 
or  even  chiefly  to  philanthropic  motives.  We  shall 
have  occasion  later  to  examine  more  closely  the  work 
of  certain  concerns  along  these  lines.  In  some  in- 
stances we  shall  find  that  the  idea  has  been  over- 
done or  poorly  managed;  but  on  the  whole,  the  great 
mass  of  evidence  tends  to  show  that  employers  be- 
lieve in  providing  for  the  welfare  of  their  work 
people  because  they  think  it  is  "good  business" — 
because  they  believe  that  the  increased  expenditure 
involved  more  than  comes  back  to  them  in  a  lowering 
of  the  cost  of  production  through  the  increased 
efficiency  of  the  working  force. 

We  come  now  to  what  has,  perhaps,  since  the  be- 
ginning of  economic  and  industrial  time,  proved  the 
greatest  factor  in  increasing  the  efficiency  of  labor 
and  in  lowering  the  cost  of  production.  It  is  called 
by  various  names, — specialization  of  labor,  division 
of  employment,  differentiation  of  emplojrment,  di- 
vision of  labor,  and  so  on.  For  convenience,  we  shall 
use  the  most  widely  accepted  term,  division  of  labor, 
in  its  broader  sense.  Briefly  defined,  we  may  say  the 
division  of  labor  is  **that  process  by  which  an  eco- 
nomic task  is  transferred  from  the  one  person  hith- 


62  BUSINESS  PRINCIPLES 

erto  performing  it  to  several  persons,  the  transfer 
being  so  made  that  each  performs  but  a  separate  part 
of  the  previous  total  labor."* 

The  reasons  for  the  increase  in  industrial  effi- 
ciency gained  by  division  of  labor  are  too  obvious  to 
need  detailed  explanation.  Briefly  stated,  it  is  ob- 
vious that  every  person  is  not  equally  qualified  by 
nature  for  every  employment.  Each  person  in  the 
world  differs  from  everybody  else  in  physical 
strength,  mental  training,  environment,  and  natural 
ability.  There  is  an  obvious  economy  achieved  if 
each  person  devotes  his  attention  exclusively  to  that 
task  which  best  befits  his  natural  and  acquired  capa- 
bilities. He  who  can  excell  his  fellowmen  in  brain 
work  ought  not  to  waste  his  time  performing  purely 
muscular  operations.  Many  other  advantages  will 
occm*  to  every  reader.  It  is  obvious,  for  example, 
that  exclusive  devotion  to  one  kind  of  task  will  make 
a  man  specially  skilled  in  performing  that  work,  a 
result  which  would  not  be  achieved  if  his  energies 
were  dissipated  over  a  wider  field.  Another  saving 
comes  from  the  fact  that  no  time  has  to  be  spent  in 
passing  from  one  employment  to  another,  or  even  in 
laying  down  one  set  of  tools  and  picking  up  another. 
Other  advantages  of  the  specialization  or  division  of 
labor  will  be  pointed  out  as  we  consider  the  different 
forms  it  may  take. 

Viewing  the  question  historically,  it  should  be 
noted  that  all  the  forms  of  business  organization 
have  been  examples  of  division  of  labor.  Even  in 
the  household  industry  there  was  from  the  earliest 

•Bticher,  "Industrial  Evolution,"  Chap.  7.     (Translated  from  the  3d 
German  edition.    New  York,  1901.) 


DIVISION  OF  LABOR  63 

times  and  there  is  still  today  a  differentiation  of 
economic  function  between  man  and  woman.  The 
rise  of  a  class  of  traders,  on  which  little  stress  was 
laid  in  the  chapter  on  the  forms  of  business  organi- 
zation because  it  had  small  bearing  on  the  develop- 
ment of  that  subject,  should  yet  be  noticed  here  as 
an  example  of  the  division  of  labor.  In  the  same 
way  in  primitive  societies  the  development  of  a  mili- 
tary class,  a  priestly  class,  a  law-making  and  law- 
enforcing  class,  out  of  the  original  single  industrial 
group,  represented  a  saving  of  labor  to  the  com- 
munity as  a  whole.  As  Professor  Seligman  remarks, 
**The  development  of  the  priestly  class,  although  of 
chief  importance  from  a  social  and  religious  point  of 
view,  had  a  noteworthy  economic  effect  in  that  it  per- 
mitted the  industrial  class  to  devote  itself  more  unre- 
mittingly to  the  daily  task  of  production,  without 
giving  so  much  of  its  time  to  the  independent  propi- 
tiation of  the  malevolent  spirits.  The  priests  were, 
in  truth,  a  labor-saving  device."*  Up  to  the  time  of 
the  rise  of  the  handicraftsmen,  however,  we  noticed 
no  marked  differentiation  of  labor  so  far  as  it  applies 
to  industrial  production  proper.  The  artisan  who 
gave  his  whole  time  to  the  manufacturing  of  a  single 
commodity,  marks  a  differentiation  of  an  industrial 
class  as  distinguished  from  the  agricultural  and 
commercial  classes. 

The  differentiation  among  the  gilds  themselves, 
and  the  rise  of  the  Domestic  System,  marked  newer 
stages  in  the  division  of  labor.  In  the  textile  trades 
the  growth  of  the  clipper,  the  spinner,  the  weaver, 
the  dyer,  the  finisher,  the  tailor,  and  so  on,  meant 

♦"Principles  of  Economics,"  p.  291.    New  York,  1905. 


64  BUSINESS  PEINCIPLES 

that  an  industrial  process  that  originally  was  per- 
formed by  a  single  man  now  passes  through  the  hands 
of  perhaps  a  dozen  men,  each  of  whom  makes  a  spe- 
cialty of  his  part  of  the  work.  The  same  principle 
of  industrial  specialization  is  applied  today  under 
the  Factory  System.  Using  for  our  example  the 
same  industry,  there  are  certain  mills  which  manu- 
facture only  yarns;  others  devote  their  activity  solely 
to  weaving  yarns  into  cloth ;  and  still  others  do  noth- 
ing but  print  patterns  on  cloth  that  has  been  pre- 
pared for  them  in  the  other  mills.  The  advantages 
of  specialization  of  this  kind  are  numerous  and 
clearly  seen. 

For  our  purposes,  the  most  important  saving 
effected  by  the  division  of  labor  is  connected  with 
that  use  of  machinery  and  grouping  of  men  in  one 
establishment  which  is  so  characteristic  of  the  Fac- 
tory System.  The  difference  between  this  and  the 
previous  form  of  division  of  labor  is,  that  this  repre- 
sents the  differentiation  of  function  among  the  work- 
men of  a  single  establishment,  rather  than  a  special- 
ization in  different  establishments.  The  principle 
that  has  been  found  so  effective  in  this  case  is  that  of 
splitting  up  all  operations  into  their  simplest  ele- 
ments, and  devoting  the  energies  of  each  workman  to 
one  elemental  task. 

It  is  obvious  that  this  specialization  on  the  part 
of  the  workman  saves  time  both  in  learning  his  task 
and  in  executing  it,  while  the  constant  repetition  of  a 
single  operation  greatly  increases  his  dexterity. 
Equally  clear  is  it  that  the  greater  the  differentiation 
of  work  in  a  single  establishment,  the  greater  chance 
there  will  be  of  finding  the  right  man  for  the  right 


DIVISION  OF  LABOE  66 

place, — of  finding  that  particular  task  which  each 
person  can  do  best. 

Thus  far  we  have  spoken  only  of  the  division  of 
labor,  as  applied  in  production  resting  upon  human 
labor  power.  With  the  application  of  machinery, 
we  find  that  human  labor  can  be  even  further  sub- 
divided. Many  machines  are  so  nearly  automatic  in 
operation  that  they  need  only  a  very  little  attention 
on  the  part  of  the  operator.  In  the  case  of  ribbon- 
weaving  machines,  for  example,  the  worker  has  little 
to  do  except  to  see  that  a  supply  of  thread  is  kept  on 
the  spools;  and  it  is  no  uncommon  sight  to  see  a  so- 
called  ribbon- weaver  turning  out  two  dozen  pieces  of 
ribbon  at  once.  It  is  evident  here  that  the  possibili- 
ties in  the  reduction  of  cost  are  almost  infinite,  for 
we  are  dealing  not  only  with  enhanced  human  dex- 
terity, with  the  simplification  of  the  processes,  but 
with  the  almost  infinite  chain  of  labor-saving  devices. 
These  two  factors,  so  important  in  lowering  cost  of 
production,  interact  upon  each  other.  The  division 
of  a  complicated  process  into  simple  and  ever  more 
simple  operations,  increases  the  possibility  of  invent- 
ing machinery  which  shall  be  capable  of  performing 
part  of  the  work.  In  shoemaking,  for  example,  at 
first  every  operation  was  performed  by  hand.  Grad- 
ually there  was  a  differentiation  of  labor;  the  soles 
were  made  by  one  set  of  persons,  the  uppers  by  an- 
other, the  sewing  by  another,  and  so  on.  About  1840 
a  pegging  machine  was  invented;  in  the  middle  of  the 
nineteenth  century  came  the  sewing  machine;  and 
gradually,  more  and  more  of  the  operations  that  had 
been  performed  by  hand  were  taken  care  of  by  auto- 
matic devices.    To-day  in  many  factories  a  shoe  is 


56  BUSINESS  PEINCIPLES 

scarcely  touched  by  the  human  hand,  from  the  be- 
ginning to  the  end  of  its  manufacture.  Just  as 
division  of  labor  facilitates  the  application  of  ma- 
chinery to  all  the  processes  of  simple  repetition,  so 
the  invention  of  machinery  itself  leads  to  a  more 
minute  subdivision  of  labor,  and  to  an  increase  in  the 
possibilities  of  devoting  the  energies  of  each  work- 
man to  the  tasks  for  which  he  is  best  fitted.  This 
minute  subdivision  of  labor  has  frequently  reduced 
human  energy  to  the  repetition  of  a  single  act,  like 
a  thrust,  a  pull,  or  some  other  simple  manipulation 
of  the  machine. 

The  saving  in  cost  of  production  through  division 
of  labor  and  the  invention  of  machinery  that  has 
gone  with  it  is  so  great  that  it  can  scarcely  be  esti- 
mated. In  the  production  of  screws,  one  man  can 
turn  out  with  the  aid  of  machinery  over  4,000  in  the 
same  time  that  it  would  take  him  to  make  one  by 
hand.  Adam  Smith,  writing  in  1776,  pointed  out  the 
advantages  of  division  of  labor  in  the  making  of 
ping.  He  showed  that  if  one  man  were  to  perform 
successfully  all  the  operations  necessary  to  turn  out 
a  pin,  he  could  make  only  a  few  in  a  day.  He  then 
explained  that  the  pin-making  process  was  divided 
into  eighteen  separate  and  distinct  operations,  with 
the  result  that  each  man  could  turn  out  about  5,000 
pins  a  day.  Since  Adam  Smith's  time,  division  of 
labor  has  led  to  the  invention  of  machinery  in  those 
operations  which  involve  only  simple  repetition,  and 
the  use  of  machinery  has  still  further  increased  the 
division  of  labor  and  enhanced  the  economies  derived 
therefrom,  so  that  the  daily  product  of  a  workman 


DIVISION  OF  LABOR  57 

today  is  said  to  average  some  fifteen  millions  of  pins, 
stuck  in  papers  and  packed  for  shipment. 

Another  form  which  the  specialization  of  pro- 
duction may  take  is  concerned  with  the  localization, 
or  grouping,  of  industries — in  other  words,  territorial 
or  geographical  division  of  labor.  It  is  obvious  that 
the  location  of  an  industry  may  be  affected  more  fa- 
vorably by  labor  conditions  in  certain  localities  than 
in  others.  A  geographical  division  of  labor  supposes 
that  there  are  peculiar  advantages  in  certain  locali- 
ties for  certain  industries.  The  large  department 
stores,  for  example,  in  any  great  city,  usually  cluster 
around  some  certain  well-known  section  or  business 
street.  The  advantage  gained  in  this  case,  as  in  many 
others,  is  that  there  will  be  most  trade  where  most 
people  come.  In  agriculture  there  has  been  enor- 
mous gains  in  productivity  through  concentrating 
certain  crops  in  those  sections  of  the  country  which 
are  best  fitted  by  soil  and  climate  to  grow  them.  The 
most  important  causes  which  influence  the  grouping 
of  industries,  which  cause  economies  through  bring- 
ing industries  to  those  places  that  are  most  favorable 
to  them,  may  be  summarized  thus: 

1.    Nearness  of  Eaw  Material  or  Fuel. 

In  the  South,  the  iron  mills  are  located  at  the 
spots  where  ore  and  coal  are  found  in  juxtaposition. 
Paper  miUs  thrive  best  near  to  the  forests  whence 
comes  their  raw  material.  On  the  other  hand,  it 
should  be  noted  that  the  development  of  transporta- 
tion has  in  many  cases  done  away  with  this  factor  in 
large  measure.    If  the  raw  materials  can  be  brought 


58  BUSINESS  PEINCIPLES 

cheaply  and  readily  from  the  places  where  they  are 
found,  it  may  be  advantageous  to  ignore  nearness  to 
sources  of  supply,  and  to  locate  the  industry  with 
reference  to  some  other  advantage.  This  factor  is 
often  of  vital  importance,  however.  The  glass- 
making  industry  cannot  move  away  from  the  natural 
gas  regions. 

2.  Nearness  to  Market. 

The  Pennsylvania  iron  and  steel  industries  draw 
their  ore  mostly  from  the  Lake  Superior  region  by  a 
wonderfully  efficient  system  of  transportation;  and 
the  finished  product  has  all  the  advantages  that  come 
from  nearness  to  the  market,  where  the  pulse  of 
trade  is  keenest  and  the  wants  of  customers  quickest 
felt.  Nearness  to  market  is  particularly  important 
in  the  case  of  articles  liable  to  be  affected  by  changes 
of  fashion.  Nearly  all  the  silk  goods  in  the  United 
States  are  made  in  or  near  New  York  City. 

3.  Labor  Supply. 

Many  industries  are  dependent  for  success  on  an 
abundance  of  skilled  labor.  Laborers  will  congre- 
gate in  those  regions  where  for  various  reasons  in- 
dustries have  concentrated.  Thus  it  is  often  advan- 
tageous for  a  new  manufacturer  to  establish  himself 
where  others  have  gone  before  him.  Nearly  all  the 
men's  collars  in  the  United  States  are  made  at  Troy, 
N.  Y.,  and  the  reputation  this  town  has  acquired  as  a 
collar  center  makes  it  almost  impossible  for  a  manu- 
facturer of  such  products  to  succeed  anywhere  else. 


DIVISION  OF  LABOR  59 

4.  Presence  of  Large  Supplies  of  Capital. 

This  brings  attention  to  the  necessity  of  adequate 
banking  facilities.  A  manufacturer  must  often 
carry  on  his  business  on  borrowed  capital;  and  in- 
vestors are  loathe  to  risk  their  money  on  far-away 
enterprises. 

5.  Water  Power. 

The  textile  industries  of  New  England  were 
started  near  water  power.  The  development  of  steam 
power  has  for  several  decades  made  this  influence 
of  little  account.  Recently,  however,  the  possibility 
of  developing  electrical  power  from  running  streams 
has  given  this  factor  increased  importance.  As  the 
supply  of  coal  becomes  scarcer,  it  is  believed  by  aU 
who  have  given  this  matter  serious  study,  that  the 
development  of  power  from  water-falls  is  destined 
to  have  a  tremendous  influence  on  our  industrial 
development. 

6.  Climate. 

A  moist  atmosphere  is  needed  for  certain  parts 
of  the  cotton  industry,  as  it  drives  the  electricity  out 
of  the  fibres.  Certain  other  industries  are  affected 
by  climatic  or  atmospheric  conditions,  but  this  in- 
fluence is  not  of  such  great  importance  in  manufac- 
turing as  in  agriculture. 


CHAPTER  m. 
LIMITATIONS  TO  THE  DIVISION  OF  LABOR. 

To  the  practical  business  men,  the  lessons  to  be 
learned  from  this  principle  of  division  of  labor  will 
present  themselves  in  the  following  form:  First,  he 
must  make  certain  in  what  line  or  lines  of  industrial 
activity  his  talents  and  his  opportunities  give  the 
greatest  promise  of  success.  Next,  he  must  select 
the  locality  which  is  best  fitted  for  his  particular  en- 
terprise, having  due  regard  to  the  nearness  of  raw 
material  or  market,  supply  of  power,  favorable  cli- 
mate, the  abundance  of  cheap  or  skilled  labor,  and 
the  supply  of  capital  or  credit  facilities.  It  is  not 
necessary  to  emphasize  again  the  fact  that  all  of 
these  factors  are  not  of  equal  value;  that  the  ques- 
tion of  proximity  to  raw  material,  for  example,  might 
be  of  vital  importance  to  some  industries  and  of  no 
importance  at  all  to  others.  For  an  industry  that  is 
already  in  operation,  the  technical  division  of  labor 
(that  which  has  to  do  with  cheapening  the  actual  cost 
of  production,  by  the  splitting  up  of  industrial 
processes  into  their  simple  elements,  so  that  each 
workman  may  specialize  on  a  single  operation,  and 
by  the  application  of  machinery  wherever  possible) 
is  of  chief  importance. 

With  so  many  examples  of  the  saving  of  cost 

61 


62  BUSINESS  PEINCIPLES 

effected  by  technical  division  of  labor  constantly  be- 
fore our  eyes,  it  may  not  be  amiss  to  point  out  certain 
limitations  to  the  application  of  this  principle.  First 
it  should  be  noted  that  division  of  labor  means  pro- 
duction on  a  large  scale.  The  process  of  making 
shoes,  for  example,  cannot  be  split  up  into  its  smallest 
elements  unless  enough  shoes  are  made  to  employ 
the  entire  time  of  at  least  one  man  to  each  minute 
subdivision.  To  take  a  concrete  case,  let  us  suppose 
that  one  man  does  nothing  but  put  in  eye-holes.  If 
he  works  by  hand  and  can  put  eye-holes  in  500  pairs 
of  shoes  per  day,  he  cannot  profitably  be  employed 
at  this  one  task  alone  unless  the  daily  output  of  the 
establishment  amounts  to  at  least  500  pairs.  If,  now, 
the  eye-holes  are  put  in  by  machinery,  and  a  single 
man  by  the  aid  of  the  machine  can  make  eye-holes 
for  5,000  pairs  of  shoes  in  a  day,  neither  the  machine 
nor  the  man  can  be  employed  to  full  advantage  in  an 
establishment  whose  output  is  less  than  5,000  pairs 
daily. 

There  is  again  a  certain  class  of  articles  which, 
from  their  nature,  give  less  opportunity  for  the  suc- 
cessful application  of  the  division  of  labor  than 
others.  Articles  produced  on  a  large  scale,  by  the 
work  of  many  hands,  each  of  which  performs  alone  a 
single  part  of  the  production  process  and  performs 
the  same  operation  for  thousands  of  other  articles, 
do  not  develop  a  great  deal  of  individuality.  There 
is  little  chance  for  variation  in  the  production  of 
articles  made  by  machinery.  Division  of  labor,  there- 
fore, can  be  applied  only  to  goods  for  which  there  is 
a  large  and  stable  demand,  for  which  the  element  of 
individuality  makes  little  difference  as  to  the  value. 


DIVISION  OF  LABOR  63 

and  which  are  little  subject  to  the  whims  and  fancies 
of  fashion.  A  striking  example  of  this  principle  is 
the  matter  of  human  headgear.  The  masculine  por- 
tion of  the  human  race  are  content,  on  the  whole, 
with  hats  made  on  one  or  two  simple  patterns.  It 
is  a  matter  of  little  concern  to  a  man  if  his  hat  looks 
precisely  like  thousands  of  others,  provided  only  he 
has  his  initials  inside  the  band,  or  some  other  means 
of  identification,  so  that  he  is  not  in  danger  of  inad- 
vertently trading  with  somebody  else.  The  ordinary 
man  does  not  care  if  his  hat  looks  as  much  like  any 
one  of  ten  thousand  others  as  two  peas  in  a  pod. 
Men's  hats,  therefore,  are  made  almost  entirely  in 
enormous  establishments,  which  take  advantage  of 
the  most  minute  specialization  and  division  of  labor 
and  machinery.  Ninety  per  cent  of  men's  hats  in 
this  country  are  made  in  Danbury,  Connecticut.  Not 
so  with  women's  hats.  The  feminine  portion  of  the 
human  race  have  never  felt  the  necessity  for  putting 
their  initials  on  their  headgear  for  purposes  of  identi- 
fication. Fashion  dictates  that,  on  the  whole,  no  two 
women's  hats  shall  look  alike;  and  whereas  a  man 
would  feel  hurt  and  out  of  place  if  his  hat  were  differ- 
ent from  everyone's  else,  a  woman  would  feel  hurt 
and  embarrassed  if  she  knew  that  there  was  one  other 
single  hat  exactly  like  her  own.  In  other  words, 
woman's  headgear  must  have  character,  individual- 
ity; this  cannot  be  secured  where  machinery  is  used, 
nor  is  it  compatible  with  too  great  an  application  of 
technical  division  of  labor. 

Another  instructive  example  is  the  manufacture 
of  furniture.  The  ordinary  chairs,  tables  and  desks 
can  be  made  in  large  amounts  from  a  single  pattern. 


64  BUSINESS  PEINCIPLES 

Furniture  so  made  is  entirely  satisfactory  to  the  ordi- 
nary run  of  people.  Some  there  are,  however,  who 
must  have  "something  different."  For  these,  furni- 
ture possessing  individuality  must  be  manufactured; 
"Louis  Treize,'*  * 'Louis  Quinze,"  "Mission,"  and 
other  varieties,  must  be  turned  out  by  skilled  arti- 
sans, by  hand  labor,  in  small  amounts.  So  it  is  with  a 
vast  number  of  articles.  As  soon  as  it  becomes  the 
fashion  to  have  something  different  from  what  every- 
body else  is  wearing  or  using,  the  subdivision  of  labor 
and  the  application  of  machinery  to  the  manufacture 
of  such  products  is  limited. 

Mass  production  cannot  be  applied  in  the  case  of 
some  articles  because  of  their  physical  qualities. 
Houses,  for  example,  might  easily  be  made  in  large 
quantities  in  specially  equipped  factories,  if  they 
could  easily  be  shipped  where  needed.  All  very 
bulky  products  are  subject  more  or  less  to  this  re- 
striction; for  unless  they  can  be  sold  in  large  quan- 
tities, there  is  an  early  and  definite  limit  to  the  di- 
vision of  labor  in  their  manufacture.  Another  physi- 
cal property  that  offers  difficulties  may  be  the  hard- 
ness or  the  brittleness  of  the  material  to  be  worked 
up.  Articles  made  of  stone  cannot,  in  many  cases, 
be  chiseled  or  cut  by  machinery;  and  the  stone  cutter, 
even  to-day,  is  a  skilled  artisan  who  works  almost 
entirely  with  his  hands.  The  carpenter,  on  the  con- 
trary, is  coming  more  and  more  to  be  a  man  who 
tends  a  machine.  There  are  many  concerns  in  this 
country  which  make  a  business  of  turning  out  all  the 
parts  necessary  for  the  building  of  a  frame  house. 
The  houses  they  make  are  of  standard  sizes  and  pat- 
terns, and  the  parts  are  all  made  by  machinery.    Li 


DIVISION  OF  LABOR  65 

the  construction  of  stone  houses  the  labor  cost  is 
many  times  greater  than  is  the  case  with  wooden 
houses;  and  their  price  is  proportionally  higher,  be- 
cause of  the  limitations  set  to  the  division  of  labor 
and  the  use  of  machinery  by  the  nature  of  the  mate- 
rial of  which  they  are  composed. 

As  concerns  the  workman  himself,  division  of 
labor,  while  it  increases  his  efficiency  directly,  is  said 
to  have  a  detrimental  effect,  indirectly,  in  the  interest 
which  he  takes  in  his  work.  By  confining  him  to  the 
constant  mechanical  repetition  of  a  simple  act,  it 
tends  to  make  him  a  machine,  rather  than  a  man.  As 
he  is  no  longer  responsible  for  the  quality  and  good 
workmanship  of  a  finished  article,  he  takes  no  pride 
in  his  achievement;  while  the  monotony  of  constant 
repetition  tends  to  stifle  and  repress  all  his  powers 
of  initiative.  This  is  indeed  a  fault  of  our  modern 
Factory  System,  but  it  can  be  averted.  The  greater 
intensity  and  monotony  of  factory  work  furnishes  us 
with  the  reason  why  business  men  find  it  profitable 
to  pay  attention  to  the  education,  stimulation,  health, 
housing,  and  social  betterment  of  workmen.  They 
find  that  it  pays  to  arouse  their  interest  in  their  work 
by  allowing  them  a  judicious  amount  of  leisure.  This 
changes  their  attitude  toward  the  work  itself.  When 
the  workingman  feels  that  the  greater  intensity  of 
his  toil  means  a  greater  productivity  that  brings  to 
him  higher  pay  and  shorter  hours,  his  whole  standard 
of  life  may  be  elevated.  His  daily  task  need  not,  as 
in  days  gone  by,  engross  the  whole  of  his  mental  and 
physical  energy.  The  specialization  of  labor  may 
even  be  made  to  give  a  man  that  pride  which  comes 
to  the  specialist;  for  the  highest  grade  of  labor  to-day 


66  BUSINESS  PRINCIPLES 

is  not  that  of  the  small  shoemaker  who  makes  the 
whole  shoe,  but  that  of  the  specialist  finisher  in  the 
great  shoe  factory.  In  short,  division  of  labor  may- 
be made  a  benefit  to  the  workman  rather  than  a  thing 
to  be  dreaded,  and  may  remain  an  aid  to  production 
without  becoming  a  menace  to  individuality. 

To  the  business  man  there  is  much  food  for 
thought  in  the  discussion  of  methods,  results,  and 
scope  of  the  principles  of  increasing  efficiency  of 
labor.  It  need  not  be  explained  that  greater  effi- 
ciency on  the  part  of  the  working  force  means  larger 
profits  to  the  enterprise,  as  well  as  higher  wages  to 
the  workman.  We  have  seen  that  the  possibility  of 
increasing  the  productivity  of  the  laborer  does  not 
apply  equally  in  all  cases.  It  differs  according  to  the 
nature  of  the  product,  the  location  of  the  business, 
the  size  of  the  establishment,  and  the  form  in  which 
it  is  organized.  To  the  business  man  who  is  not 
already  established,  these  factors  should  be  taken 
into  account  in  deciding  what  line  of  enterprise  is 
likely  to  promise  the  greatest  development  and  the 
largest  profits  in  the  future.  Moreover,  it  should  be 
emphasized  that  the  successful  application  of  di- 
vision of  labor  and  of  other  principles  tending  to  in- 
crease efficiency  may  be  seriously  handicapped  if 
it  is  inaugurated  by  a  manager  or  foreman  or  pro- 
prietor who  has  not  the  qualities  and  training  that 
make  him  a  good  organizer  and  manager  of  men.  If 
he  is  not  acquainted  with  all  the  factors  that  make 
for  greater  efficiency,  and  with  all  the  conditions 
under  which  such  factors  are  limited  in  their  applica- 


DIVISION  OF  LABOB  67 

tion,  satisfactory  results  may  be  negatived  at  the  very 
beginning. 

Division  of  labor  and  stimulation  of  various  kinds 
do  not  describe  the  whole  of  the  processes  which  go 
to  make  a  working  force  efficient.  The  most  scien- 
tific specialization  of  the  laborers,  and  the  best  ap- 
proved methods  of  stimulation,  may  still  go  for 
nought  unless  the  labor  force  is  arranged  and  organ- 
ized in  the  most  economical  and  effective  manner. 
In  other  words,  labor  must  be  combined  both  with 
itself  and  with  the  other  factors  of  production  in  the 
most  efficient  way.  The  task  here  is  one  that  be- 
longs to  the  manager,  and  the  questions  it  brings  up 
are  too  numerous  and  too  vital  to  be  dismissed  in  a 
few  paragraphs.  It  may  be  well,  however,  to  sum- 
marize briefly  the  problems  presented,  in  order  that 
we  may  see  in  a  broad  perspective  the  relation  of 
business  management  to  the  efficiency  of  labor. 

(1)  As  we  have  seen,  the  relation  of  labor  to 
capital,  and  the  ways  in  which  labor  cooperates  with 
capital,  are  of  fundamental  importance.  The  advan- 
tages of  division  of  labor  begin  to  assume  magnificent 
proportions  when  machinery  is  employed.  The  effi- 
cient manager  must  combine  labor  with  capital  in 
exactly  those  proportions  which  will  yield  the  great- 
est results  per  unit  of  expenditure.  The  manager  of 
a  construction  company,  for  example,  may  have  to 
decide  whether  it  would  pay  better  to  get  a  steam 
shovel  with  one  man  to  run  it,  or  to  hire  ten  men  and 
provide  them  only  with  wheelbarrows  and  shovels. 
It  is  not  always  the  concern  which  has  the  latest  or 
most  improved  devices  that  makes  the  largest  profits. 
Many  business  houses  could  do  their  bookkeeping 


68  BUSINESS  PEINCIPLES 

more  simply  and  more  quickly  if  someone  were  to 
present  them  with  billing  and  adding  machines;  but 
the  heads  of  these  businesses  do  not  find  it  profitable 
to  install  expensive  machines  which  could  only  be 
used  a  few  minutes  each  day.  The  principles  here 
involved  are  more  or  less  intimately  bound  up  with 
the  subjects  of  cost  systems  and  cost  accounting,  to 
be  considered  later. 

(2)  The  different  parts  of  a  working  force  must 
be  organized  in  such  a  way  that  each  portion  of  the 
product,  as  it  is  completed,  can  be  passed  on  to  the 
next  set  of  workers.  If  any  hands  are  idle  because 
the  working  up  of  the  product  has  not  been  so  ar- 
ranged as  to  come  to  them  when  they  are  ready  for 
it,  there  is  a  loss  to  the  manufacturer,  in  wages  paid 
but  not  earned.  If,  on  the  other  hand,  the  work 
comes  into  one  department  faster  than  it  can  be  taken 
care  of,  there  is  a  clogging  of  the  wheels  of  industry, 
a  loss  from  the  tying  up  of  capital,  and,  possibly  a 
much  greater  loss  from  non-fulfillment  of  contracts. 
The  problems  that  suggest  themselves  here  will  be 
taken  up  when  we  come  to  consider  questions  of 
routing  and  order  systems. 

(3)  Closely  related  to  the  preceding  example  of 
combination  of  labor  is  that  in  which  each  separate 
portion  of  the  work  may  be  in  the  hands  of  a  sepa- 
rate class,  but  in  which  they  all  work  simultaneously, 
so  that  the  different  parts  may  be  assembled  in  the 
finishing  process.  Any  department  that  is  behind 
hand  in  its  appointed  task  may  delay  the  work  of  all 
the  rest;  for  of  course  the  finished  product  cannot  be 
turned  out  any  faster  than  any  one  of  its  parts.  In 
many  industries,  and  particularly  in  those  connected 


DIVISION  OF  LABOE  69 

with  iron  and  steel  manufacture,  unless  all  depart- 
ments cooperate  exactly  at  the  critical  moment,  the 
product  will  be  worthless.  This  question  will  come 
up  for  discussion  under  the  subjects  order  of  work 
and  routing. 

All  that  has  been  said  emphasizes  the  fact  that, 
with  the  growing  division  of  labor  and  the  greater 
complexity  of  the  problems  that  are  connected  with 
the  combination  of  labor,  grows  the  need  of  the 
highest  ability  and  the  greatest  training  and  expe- 
rience for  the  directing  of  industry.  The  great  or- 
ganizer of  a  working  force  must  have  under  him  an 
army  well  disciplined,  down  to  the  smallest  detail, 
and  must  have  the  ability  to  mass  his  forces  at  just 
the  time  and  in  just  the  manner  that  will  bring  the 
greatest  results.  His  importance  grows  apace  with 
the  growing  magnitude  and  complexity  of  industry. 
Mis  judgment  or  ignorance  will  now  destroy  more 
wealth,  and  knowledge  with  wise  judgment  can  pro- 
duce larger  results,  than  ever  before. 


CHAPTER  IV. 
THE  LARGE  BUSINESS  AND  THE  SMALL. 

Of  the  hundreds  of  thousands  of  men  in  this  coun- 
try who  are  at  the  head  of  a  small  business  at  present, 
there  are  probably  very  few  indeed  who  are  not  striv- 
ing with  might  and  main  to  make  their  plant,  or 
premises,  bigger,  their  sales  greater,  and  their  pro- 
duction or  trade  on  a  larger  scale.  The  rise  of  a 
great  business  from  small  beginnings  is  almost  with- 
out exception,  the  history  of  the  vast  majority  of  our 
great  industries.  Conspicuous  examples  of  success 
achieved,  and  fortunes  made,  through  the  enlarge- 
ment of  originally  insignificant  enterprises  stand  be- 
fore everyone,  and  serve  to  encourage  the  small 
manufacturer  to  go  and  do  likewise.  Eew  stop  to  ask 
how  many  the  failures  have  been,  or  what  proportion 
obtains  between  the  mmaber  of  those  who  fail  and 
those  who  succeed.  The  successes  are  shouted  to  the 
skies,  are  printed  in  every  newspaper,  so  that  all 
may  know;  the  failures  are  printed  only  in  the  lists 
of  bankruptcies,  and  form  an  interesting  topic  of 
conversation  only  to  the  disappointed  creditors. 

A  prominent  life  insurance  company  has  calcu- 
lated that  only  two  out  of  a  hundred  succeed  in  busi- 
ness. Everyone  who  stops  to  think  will  remember 
numbers  of  cases  where  men  who  have  been  success- 

71 


72  BUSINESS  PEINCIPLES 

ful  in  conducting  small  enterprises  have  decided  to 
branch  out  and  enlarge  their  plant,  and  who,  not 
being  able  to  carry  on  the  larger  business,  have  gone 
to  the  wall.  Men  who  have  succeeded  in  a  small  way, 
fail  in  a  larger  field  from  a  number  of  reasons.  The 
first  of  these  is  perhaps  because  they  are  not  trained; 
they  do  not  know.  Up  to  a  few  years  ago,  it  was  gen- 
erally supposed  that  practical  experience  was  the 
only  guide  that  would  keep  men  from  making  mis- 
takes. Nowadays,  with  the  specialization  of  modern 
business,  it  is  becoming  more  and  more  recognized 
that  practical  experience  does  not,  and  cannot  for  the 
great  mass  of  employes  and  small  business  men,  fur- 
nish unaided  the  kind  of  training  that  is  today 
requisite  for  large  success.  Special  training  in  busi- 
ness principles  is  needed.  Then,  again,  it  is  erro- 
neously supposed  that  there  is  under  all  circum- 
stances something  about  a  large  scale  business  that 
must  inevitably  lead  to  larger  profits  and  greater 
success. 

It  is  the  purpose  of  this  chapter  to  point  out  the 
advantages  that  business  conducted  on  a  large  scale 
has  over  a  smaller  one,  and  also  the  advantages  of  a 
small-scale  enterprise  over  a  large  one. 

The  advantages  of  large  scale  production  may  be 
grouped  as  follows : 

(1)  It  has  already  been  noted  that  in  a  large 
factory  there  is  a  greater  opportunity  for  the  full  use 
of  machinery.  Expensive  machines  cannot  be  profit- 
ably installed  unless  the  output  is  large  enough  to 
keep  such  machines  busy.  Many  small  factories 
manage  to  make  one  machine  turn  out  several  pat- 
terns and  varieties  of  product,  by  adjusting  it  anew 


LARGE  AND  SMALL  BUSINESS  73 

for  each  change.  A  saving  is  effected  when  the  out- 
put is  large  enough,  so  that  a  special  machine  can  be 
kept  adjusted  for  each  pattern  and  size.  In  the  small 
establishment  it  is  inevitable  that  some  of  the  ma- 
chinery cannot  be  used  to  its  fullest  extent,  some  of 
it,  therefore,  will  be  liable  to  rust  and  decay  from 
disuse,  and  in  any  event  there  is  a  larger  proportion- 
ate investment  of  capital  on  which  interest  must  be 
earned.  In  a  large  factory,  where  the  stock,  the  ma- 
terial, and  the  machines  are  in  constant  and  active 
employment,  the  output  is  greater  in  proportion  to 
the  capital  invested,  and  the  profits  should  be  pro- 
portionally larger.  It  remains  to  be  seen,  however, 
whether  the  other  factors  of  production — ^besides 
capital,  stock  and  machinery — can  be  as  effectively 
organized  and  utilized  in  a  large  factory  as  in  a  small. 
If  they  cannot,  the  advantage  gained  from  the  more 
complete  and  effective  use  of  machinery  may  be 
nullified. 

(2)  It  is  equally  obvious  that  all  the  advantages 
of  division  of  labor  can  be  utilized  only  in  a  large 
establishment.  Splitting  up  the  processes  of  pro- 
duction into  more  and  more  minute  operations  de- 
pends for  its  successful  application  on  an  output 
large  enough  to  keep  at  least  one  man  fully  occupied 
on  each  minute  subdivision.  If  now,  this  one  man  is 
tending  a  machine  which  multiplies  his  output  very 
considerably,  the  size  of  the  business  which  can  ef- 
fectively use  the  man  and  the  machine  together  must 
increase  proportionally.  It  is  clear  that  a  concern 
which  is  large  enough  to  use  such  a  man  and  such  a 
machine,  and  to  put  in  other  machines  and  other  men 
as  new  processes  are  invented,  will  have  a  tremen- 


74  BUSINESS  PRINCIPLES 

dous  advantage  over  a  smaller  concern.  The  small 
establishment  is  often  unable  to  install  new  and 
elaborate  machines  or  to  adopt  new  processes,  be- 
cause the  total  output  is  not  large  enough  to  devote 
the  exclusive  attention  of  a  workman  or  a  machine 
to  a  small  part  of  the  production  process. 

It  often  happens  that  there  is  a  considerable  ad- 
vantage gained,  not  only  through  the  possibility  of 
adopting  the  best  machinery  and  the  latest  processes, 
but  also  through  the  organization  of  special  depart- 
ments in  which  different  parts  of  the  work  may  be 
carried  on.  A  special  department  in  a  large  estab- 
lishment effects  economies  in  organization  and  man- 
agement, in  machinery,  tools,  and  equipment,  in  floor 
space,  and  in  utilization  of  power,  that  are  not  pos- 
sible where  two  or  three  different  processes  are  car- 
ried on  in  one  room, — possibly  under  a  single  fore- 
man. In  fact,  specialization  of  departments  is  an- 
other phase  of  division  of  labor,  for  it  allows  a  single 
foreman  or  superintendent  to  devote  his  energies  to 
that  special  part  of  the  production  process  for  which 
he  is  best  fitted. 

(3)  In  these  days  of  constant  change  and  con- 
stant improvement,  the  manufacturer  who  is  not 
progressing,  who  is  not  lessening  his  cost  of  produc- 
tion, who  is  not  finding  out  new  methods  and  new 
processes  that  make  for  better  products  at  cheaper 
cost,  will  soon  find  his  competitor  forging  ahead  of 
him.  Every  manufacturer  and  merchant  is  experi- 
menting and  investigating  to  find  better  methods.  A 
concern  that  is  organized  on  a  large  scale  in  these 
days  usually  finds  it  profitable  to  maintain  a  depart- 
ment exclusively  devoted  to  investigation  and  ex- 


LAEGE  AND  SMALL  BUSINESS  75 

periment.  The  small  business  man  is  often  handi- 
capped by  the  necessity  which  he  is  imder,  of  at- 
tempting improvements  himself,  without  the  aid  and 
experience  of  specialists  to  help  him,  and  without 
the  proper  facilities  for  trying  out  the  new  methods 
before  definitely  installing  them. 

(4)  In  a  larger  industry,  the  cost  of  an  office 
force,  of  management,  supervision,  and  selling,  are 
relatively  less.  Up  to  a  certain  point  it  is  often  true 
that  the  force  of  bookkeepers  and  clerks  and  stenog- 
raphers that  are  absolutely  necessary  for  conducting 
the  business  will  be  able  to  handle  a  much  larger  vol- 
ume of  bookkeeping,  correspondence,  and  reports, 
without  a  proportional  increase  in  number.  Division 
of  labor,  organization  of  processes,  and  division  into 
special  departments,  decrease  the  difficulty  of  super- 
vision in  larger  factories,  where  all  productive  opera- 
tions are  divided,  systematized,  and  made  a  matter  of 
routine.  The  foreman  who  handles  twenty  men  could 
perhaps  as  easily  manage  thirty.  Systems  may  be 
installed  by  which  the  keeping  of  cost  accounts,  the 
tracing  of  orders,  the  necessary  inspection  of  results, 
is  made  more  rapid  and  easy.  In  the  matter  of  ad- 
vertising and  marketing  products,  tremendous  econo- 
mies are  often  procured,  especially  in  certain  kinds 
of  goods  for  which  a  demand  must  be  created  by 
effective  display  advertising,  or  by  maintaining  an 
efficient  force  of  salesman.  In  these  cases,  where  a 
certain  amount  of  advertising  has  to  be  done  any- 
way, every  increase  in  the  output  imposes  a  smaller 
burden  on  each  unit  of  the  product. 

(5)  Standardization  and  interchangeability.  It 
has  frequently  been  pointed  out  that  modern  factory 


76  BUSINESS  PRINCIPLES 

methods,  with  use  of  machinery  wherever  possible, 
and  with  great  specialization  of  labor,  imply  uni- 
formity of  production.  A  machine  turns  out  the 
same  thing  day  after  day,  and  the  advantages  of  spe- 
cialization and  cheap  mass  production  are  derived 
chiefly  from  this  continual  repetition.  Products  of 
the  same  class  look  alike,  and  are  made  alike.  Hence 
there  is  what  is  sometimes  called  standardization  of 
industry;  that  is,  the  uniform  repetition  and  produc- 
tion of  the  same  type.  A  vast  amount  of  ingenuity 
has  been  expended  in  recent  years  in  multiplying  the 
tj^es,  so  that  a  greater  and  greater  number  of  prod- 
ucts may  be  standardized.  The  large  establishment 
that  turns  out  different  varieties  and  sizes  of  the 
same  product  finds  it  possible  to  standardize  patterns 
and  sizes  not  in  demand  by  the  ordinary  run  of  cus- 
tomers. The  smaller  concern  is  frequently  obliged 
to  manufacture,  under  special  contract  and  specifica- 
tion, products  which  other  concerns  can  standardize. 
It  should  be  noted  in  this  connection  that  few  es- 
tablishments, either  large  or  small,  have  given  strict 
attention  to  the  economies  which  may  be  effected  by 
a  more  complete  application  of  the  principle  of  stand- 
ardization, even  in  lines  of  product  turned  out  under 
special  contract.  It  is  frequently  possible  to  make 
some  classification  by  which  a  number  of  special 
grades  of  goods  can  be  brought  into  uniformity.  In 
many  cases,  the  standardization  of  a  product  can  be 
brought  about  through  cooperation  with  the  selling 
end  of  the  business.  A  conscientious  attempt  may 
be  made  to  push  the  sales  of  a  hitherto  special  article 
so  that  the  output  may  be  multiplied  sufficiently  to 
justify  standardizing  the  production. 


LAEGE  AND  SMALL  BUSINESS  77 

Many  of  the  benefits  of  standardization  at  present 
enjoyed  only  by  large  establishments  might  easily  be 
realized  by  smaller  concerns  if  the  matter  were  given 
the  careful  and  scientific  attention  it  deserves.  There 
are  many  cases  in  which  the  finished  article  in  its 
entirety  cannot  be  reduced  to  standard,  and  yet  the 
different  parts  of  which  it  is  composed  may  be  stand- 
ardized. Many  times  an  establishment  turning  out 
different  sizes  and  patterns  will  find,  upon  careful 
examination,  that  many  parts  which  are  now  made 
separately  for  each  special  order  may  be  made  uni- 
form for  a  large  number  of  articles.  This  applies 
particularly  to  the  smaller  parts  of  which  an  article 
is  composed,  such,  for  example,  as  bushings,  screws, 
pins,  rivets,  etc.  The  methods  of  determining  the 
range  and  scope  of  the  economies  in  standardization 
which  may  be  effected  by  establishments,  large  or 
small,  will  come  up  for  our  attention  again  in  later 
pages. 

Standard  large-scale  mass  production  means  in- 
terchangeability  of  parts.  Since  all  complex  prod- 
ucts are  made  in  minute  portions,  and  since  all  these 
portions  are  uniform  in  size  and  shape,  one  com- 
ponent part  is  as  good  as  another  of  the  same  class, 
and  may  be  used  interchangeably.  Interchange- 
ability  is  an  advantage  to  the  consumer,  because,  for 
example,  if  some  particular  thing  breaks  in  a  harvest- 
ing machine  or  an  automobile,  it  can  be  duplicated  at 
once  at  a  minimum  of  cost.  To  the  extent  that  an 
establishment  has  standardized  all  its  products  and 
all  possible  parts  of  products,  it  enjoys  this  advan- 
tage of  interchangeability.  To  the  extent  to  which 
a  large-scale  manufacturer  can  carry  the  principle  of 


78  BUSINESS  PEINCIPLES 

standardization  farther  than  a  small  manufacturer 
can,  the  large  concern  has  an  advantage  over  the 
small. 

(6)  A  number  of  other  advantages  effected  by 
large  concerns  may  be  lumped  together,  under  the 
head  of  miscellaneous  economies.  For  one  thing,  the 
large-scale  manufacturer,  by  buying  his  raw  material 
in  big  lots,  may  secure  it  cheaper.  In  the  matter  of 
publicity  there  is  an  advantage  in  mere  size;  for 
people  are  liable  to  be  impressed  by  the  operations  of 
a  big  firm.  Customers  are  liable  to  think,  and  rightly, 
too,  that  a  large  house  can  keep  a  more  complete 
stock  on  hand,  and  when  in  need  of  odd  or  peculiar 
sizes,  will  send  to  the  large  firms  rather  than  the 
small.  Economies  may  be  made  in  transportation 
charges;  shipments  in  carload  and  trainload  lots 
make  possible  special  and  sometimes  illegal  conces- 
sions from  express  and  delivery  companies  and  from 
railroads. 

When  all  or  a  considerable  number  of  these  ad- 
vantages can  be  realized,  a  large  concern  is  distinctly 
superior  to  a  small  one.  There  are  an  infinite  number 
of  causes,  however,  in  which  the  small  concern  cannot 
hope  to  expand  successfully  into  a  large  one,  and 
from  an  almost  infinite  number  of  causes.  Perhaps 
the  most  general  reason  is  that  many  men  who  are 
capable  of  conducting  a  small  enterprise  successfully 
are  not  equally  efficient  with  a  large  concern.  It  is 
not  often  that  the  ruler  of  a  little  Iberian  village  has 
the  brains,  foresight,  experience  and  knowledge  of 
men  that  would  make  him  successful  even  as  the  sec- 
ond in  Rome.  Many  business  men  in  enlarging  their 
plant,  increasing  their  working  force,  and  in  seeking 


LARGE  AND  SMALL  BUSINESS  79 

a  wider  market  for  their  products,  do  not  realize  the 
conditions  of  successful  manufacturing  may  be  very 
different  on  a  large  scale  from  what  they  were  on  a 
small.  The  apportionment  of  floor  space,  the  ar- 
rangement of  departments,  the  tracing  and  routing 
of  the  product,  may  all  have  to  be  done  in  a  way  with 
which  the  man  is  not  familiar.  A  man  who  can  or- 
ganize a  force  of  workmen  and  keep  them  efficiently 
employed  when  their  nmnbers  are  so  few  that  he  can 
come  in  personal  contact  with  each  man,  may  not  be 
able  to  do  anything  at  all  when  he  has  to  reach  the 
men  through  the  medium  of  foreman  or  bosses.  Last, 
but  not  least,  he  who  effectively  and  satisfactorily 
supplied  the  demands  of  a  local  market  may  be  to- 
tally unacquainted  with  the  conditions  surrounding 
the  marketing  of  products  over  a  wide  area.  The 
principles  of  successful  advertising,  organizing  and 
training  an  effective  force  of  salesmen,  methods  for 
determining  the  demand  of  an  unknown  territory, 
and  the  competition  of  rival  firms — all  these  are  con- 
ditions which  do  not  confront  the  small  local  concern, 
but  which  lie  in  wait  to  compass  the  downfall  of  the 
large-scale  manufacturer. 

The  small  manufacturer  branching  out  has  to  con- 
sider in  addition  the  problems  connected  with  the 
larger  investment  of  capital.  First,  there  is  the  ini- 
tial difficulty  of  securing  the  funds  necessary  to  start 
a  large  business.  Supposing  these  to  have  been  se- 
cured, the  difficulty  of  procuring  the  funds  of  which 
the  conductor  of  a  large  enterprise  finds  himself  peri- 
odically in  need,  will  depend  not  only  upon  the  finan- 
cial resources  of  the  place  where  the  business  is  con- 


80  BUSINESS  PRINCIPLES 

ducted,  but  also  upon  the  confidence  which  moneyed 
men  have  in  the  ability  of  the  manufacturer. 

The  larger  earnings  of  a  larger  business  may, 
after  all,  mean  only  that  the  enterprise  is  earning 
interest  on  the  larger  capital  invested  in  it.  In  this 
case  there  is  no  margin  of  profits.  Profits  are  com- 
ing more  and  more  to  be  regarded  as  in  the  nature  of 
wages  paid  for  superior  management,  and  as  in- 
fluenced somewhat  by  variations  due  to  chance.  It  is 
easy  to  see  that  if  profits,  after  all,  are  only  wages  of 
management,  profits  naturally  ought  to  increase  in 
proportion  to  the  difficulties  of  the  problems  of  man- 
agement. The  difficulties  increase  with  the  size  of 
the  establishment;  and  profits  will,  under  normal  con- 
ditions, grow  proportionally  if  the  man  at  the  head 
can  organize  and  conduct  the  business  successfully. 
As  we  have  pointed  out,  the  work  and  problems  that 
confront  the  proprietor  of  a  large  concern  are  very 
different  from  those  connected  with  a  small  business, 
and  call  for  a  more  varied  and,  in  many  respects,  an 
entirely  different  set  of  abilities.  The  man  who  can 
successfully  run  a  country  drygoods  store  may  be 
utterly  at  sea  if  put  in  charge  of  a  large  city  depart- 
ment store.  Unless  he  was  absolutely  certain  that  he 
could  cope  with  the  larger  problems  and  successfully 
meet  its  conditions,  he  would  be  unwise  to  give  up  his 
small  business  for  a  larger  one.  In  a  country  town 
he  might  succeed  in  making  some  profits  in  a  small 
business,  but  a  large  establishment  would  most  prob- 
ably meet  with  nothing  but  loss  under  his  hand. 

But  it  may  be  asked,  if  the  economies  and  advan- 
tages of  a  large-scale  enterprise  are  so  numerous  and 
so  marked,  what  chance  has  the  small  business  of 


LARGE  AND  SMALL  BUSINESS  81 

success  ?  In  certain  lines  of  business  it  is  true  that 
the  small  concern  is  seriously  handicapped.  It  is  said 
that  a  successful  sugar  refining  mill,  one  that  takes 
advantage  of  all  the  economies  of  production  and  or- 
ganization which  will  enable  it  to  meet  competition 
from  establishments  already  in  the  field,  cannot  be 
put  uj)  on  an  investment  of  capital  that  does  not  run 
into  the  millions.  In  the  steel  business  the  same  is 
true.  A  new  company  could  not  hope  to  cope  suc- 
cessfully with  those  already  in  the  field  on  a  capi- 
talization of  less  than  $30,000,000,  according  to  a 
statement  recently  made  by  a  competent  authority. 
But  on  the  whole,  these  are  exceptions  to  the  general 
rule.  There  are  many  disadvantages  and  limitations 
to  the  successful  operation  of  a  large  industry.  In 
most  lines  of  industrial  activity,  the  small  business 
carries  on  successful  competition  with  its  larger  rival. 
Bonanza  farms,  department  stores,  and  great  cor- 
porations, each  representing  large  production  and 
complexity  of  organization  and  management,  yet 
suffer  keen  competition  from  their  rivals.  Perhaps 
the  most  important  reason  for  this  seemingly  strange 
state  of  affairs  lies  in  the  fact  that  the  advantages 
of  large-scale  enterprise  are  realized  only  through 
trained,  skilled,  scientific  management.  The  number 
of  men  who  have  the  training,  skill  and  knowledge  of 
the  principles  of  successful  organization  is  strictly 
limited.  The  few  concerns  that  are  scientifically  or- 
ganized cannot  supply  the  entire  demand.  If  the 
demand  is  large  enough  the  remaining  concerns,  no 
matter  how  poorly  organized,  will  still  make  profits. 
While  the  ability  to  organize  a  large  concern 
successfully,  is  very  limited  indeed,  the  ability  to 


82  BUSINESS  PRmCIPLES 

keep  a  small  business  up  to  a  comparatively  high 
mark  of  efficiency  is  much  more  conunon.  The  man 
of  ordinary  capacity  can  keep  his  mind  on  the  ins  and 
outs  of  a  small  business  and  prevent  waste;  he  can 
give  personal  attention  to  the  work  of  the  men  he  em- 
ploys, and  so  prevent  the  idleness,  carelessness  and 
misdirected  energy  that  prove  so  costly  in  a  large 
concern  not  properly  managed.  Now  a  small  con- 
cern well  managed  has  nothing  to  fear  from  a  large 
establishment  ineffectively  organized,  no  matter 
what  advantages  the  latter  may  enjoy  by  reason  of 
its  size.  It  is  significant  that  the  industries  in  which 
the  small  concern  cannot  hope  for  success,  the  indus- 
tries in  which  the  advantages  of  large-scale  produc- 
tion are  most  fully  utilized, — the  industries,  in  fact, 
in  which  we  lead  the  world,  are  those  in  which  the 
greatest  progress  in  the  science  of  organization  has 
been  made.  The  manufacture  of  iron  and  steel,  the 
refining  of  sugar,  the  refining  and  marketing  of 
petroleum,  stand  out  as  conspicuous  examples  in 
which  all  the  economies  of  large  size  have  been  real- 
ized by  a  highly  efficient  organization.  In  these  in- 
dustries the  small  concern,  no  matter  how  well  man- 
aged, has  no  chance  of  success.  Moreover,  it  should 
be  noted  that  in  these  cases,  efficient  large-scale  or- 
ganization has  been  extended  over  so  wide  a  field, 
and  permanently  supplies  so  large  a  percentage  of 
the  demand,  that  there  is  little  room  for  the  products 
of  unscientifically  managed  concerns. 

Besides  limitations  connected  with  the  difficulty, 
and  in  some  cases  the  almost  impossibility,  of  secur- 
ing efficient  management  and  organization,  there  are 
in  many  cases  absolute  bounds  beyond  which  an  in- 


LARGE  AND  SMALL  BUSINESS  83 

crease  in  size,  even  if  accompanied  with  a  correspond- 
ing increase  in  skill  of  management,  will  yield  no 
economies,  no  advantages  of  any  kind.  When  each 
man  is  devoting  his  exclusive  attention  to  the 
smallest  possible  subdivision  of  the  product,  even 
doubling  the  number  of  employes  will  not  do  more 
than  double  the  product.  In  this  case  there  would 
be  a  strong  tendency  toward  a  proportional  loss  in 
output,  for  the  difficulties  of  organization  would  be 
increased  without  bringing  any  gain  in  efficiency. 
In  most  industries  there  is  a  certain  size  of  plant  and 
equipment  that  will  employ  to  the  fullest  all  the  ma- 
chinery and  men.  To  make  the  establishment  one- 
third  larger,  for  example,  would  mean  that  some  of 
the  new  machinery  that  would  have  to  be  installed 
might  have  to  remain  idle  two-thirds  of  the  time.  If 
the  eye-hole  puncher  in  a  shoe  factory  will  punch 
6,000  pairs  of  shoes  in  a  day,  and  the  output  is  just 
6,000,  the  machine  and  the  man  that  tends  it  are 
fully  employed.  To  increase  the  output  to  8,000 
would  require  another  punching  machine  and  an- 
other man  to  take  care  of  the  extra  2,000  pairs,  yet 
both  would  have  to  be  idle  two-thirds  of  the  time. 
When  the  finest  machinery  can  be  kept  constantly  in 
use,  economy  in  its  employment  has  reached  the 
maximum.  The  point  of  greatest  economy  differs 
widely  in  different  lines  of  business,  but  in  most  in- 
dustries it  comes  at  a  comparatively  early  stage; 
this  fact  serves  to  explain,  in  large  measure,  why  the 
small  establishment  can  compete  with  the  large. 

Certain  other  definite  disadvantages  attend  the 
large-scale  business.  Factories  with  a  numerous 
corps  of  workmen  tend  to  create  cities  around  them. 


84  BUSINESS  PEINCIPLES 

Land  then  rises  in  value,  rents  go  up,  taxes  increase, 
and  higher  wages  have  to  be  paid.  If  all  these  added 
expenditures  are  not  accompanied  by  corresponding 
advantages  due  to  larger  size,  profits  will  rapidly 
dwindle  to  zero.  Certain  recent  developments  in  the 
silk  industry  furnish  an  example  in  point.  In  the 
textile  industries  it  is  well  known  that  the  economies 
accruing  from  an  increase  in  size  are  limited  at  an 
early  point.  The  silk-making  establishments,  which 
have  for  a  long  time  centered  around  New  York  in 
order  to  be  near  the  market  and  the  source  whence 
raw  material  is  secured,  for  some  years  have  felt 
themselves  embarrassed  by  rising  rents,  taxes,  prices 
of  fuel  and  wages.  The  output  of  silk  goods  has  enor- 
mously increased  during  the  same  period,  but  it  has 
been  accomplished  by  an  increase  in  the  number  of 
plants  rather  than  in  the  side  of  each  establishment. 
During  the  last  decade  a  large  number  of  silk  manu- 
facturers have  found  it  necessary  to  move  away  from 
the  silk-making  center  into  the  mining  regions  of 
Pennsylvania,  where  rents,  taxes,  and  wages  are 
lower,  and  fuel  is  cheaper.  Small  factories  can  often 
thrive  in  small  localities  where  so  many  of  the  items 
of  expense  above  mentioned  are  lower  than  in  thickly 
populated  districts.  Many  out-of-the-way  places  are 
provided  with  limited  supplies  of  raw  material  which 
would  not  be  utilized  if  an  industry  were  not  on  the 
spot  to  work  them  up,  in  which  case  they  can  often 
be  secured  very  cheaply.  Other  small  concerns 
thrive  because  of  the  possession  of  cheap  though  lim- 
ited sources  of  power,  by  means  of  which  they  com- 
pete successfully  in  many  markets. 

Lastly,  it  must  be  remembered  that  the  market 


LAEGE  AND  SMALL  BUSINESS  85 

that  can  be  reached  by  one  concern,  whether  it  be  a 
factory,  a  store,  or  a  lawyer's  practice,  is  limited  by 
distance.  Heavy  products  cannot  be  transported  far, 
except  in  certain  cases  in  which  the  articles  are 
localized.  Coal  can  be  sent  a  long  distance  some- 
times, because  the  coal-fields  are  restricted  to  certain 
regions.  On  the  other  hand,  cheap  and  bulky  furni- 
ture can  be  made  almost  anywhere,  and  the  manufac- 
turers of  such  products  must  keep  their  output  down 
to  an  amount  that  will  satisfy  local  demands,  but  no 
more.  In  cases  of  this  kind,  no  matter  how  large  the 
profits  of  a  small  establishment,  it  would  be  suicidal 
to  attempt  to  branch  out.  The  small  retail  mer- 
chant who  is  supplying  the  daily  demands  of  a  local 
trade  is  in  much  the  same  position;  his  advantages 
over  the  large  department  store  consists  in  the  fact 
that  he  furnishes  groceries  or  dry  goods  or  what  not, 
at  the  time  and  on  the  spot  where  they  are  most 
needed.  These  utilities  of  time  and  place  would 
vanish  if  he  should  mistakenly  try  to  reach  out  for  a 
wider  market;  what  he  furnishes  is  limited  by  dis- 
tance. Successful  enlargement  of  his  business  must 
be  accompanied  by  an  enlargement  and  a  change  in 
the  nature  of  his  product;  he  must  supply  better 
goods,  make  quicker  deliveries,  keep  a  larger  and 
more  varied  stock  on  hand;  the  most  he  can  do  is  to 
open  up  a  branch  store  in  a  different  locality.  In  a 
word,  he  must  go  more  or  less  into  a  different  line  of 
business  before  he  can  reach  out  for  greater  profits. 
The  limitations  of  distance  will  keep  the  small  re- 
tailer within  even  stricter  bounds  if  he  is  located  in 
a  small  town,  where  plans  for  enlargement  must  be 
pursued  with  unusual  caution. 


CHAPTER  V. 

INTERNAL    ORGANIZATION;  DEFECTS    OF 
ORDINARY   TYPES    OF   MANAGEMENT. 

The  subject  matter  of  the  preceding  chapters  has 
been  in  the  main  historical  and  general.  Emphasis 
has  been  laid  more  particularly  on  the  broad  prin- 
ciples of  economic  doctrine  that  have  to  do  with  the 
forms  of  business  enterprise,  the  factors  affecting 
the  productivity  of  labor  and  capital,  the  conditions 
deciding  the  most  effective  size  for  the  industrial 
imit,  the  general  principles  that  bear  upon  business 
activity  in  its  broader  aspects.  The  account  has 
been  far  from  complete.  An  exhaustive  treatment 
of  this  phase  of  our  subject  would  take  us  far  afield, 
and  would  have  to  cover  the  whole  range  of  political 
economy,  finance,  banking,  foreign  trade,  commercial 
law,  economic  resources,  labor  problems  and  account- 
ing. To  select  the  prime  essentials  out  of  this  ency- 
clopedic mass  of  factors  that  have  a  bearing  more  or 
less  direct  on  business  organization,  and  to  present 
the  principles  involved  even  in  a  brief  and  unelabo- 
rated  form  does  not  lie  within  the  scope  of  this  work. 
Those  who  are  desirous  of  making  a  more  complete 
study  of  the  wider  problems  that  touch  so  many  sides 
of  economic  activity  are  referred  to  the  multitude  of 
excellent   separate   works    on   each   subject.    The 

87 


88  BUSINESS  PRINCIPLES 

branches  of  study  of  this  general  nature  that  have 
been  considered  in  the  previous  chapters  are 
those  which  seemed  to  be  most  directly  and  inti- 
mately connected  with  the  problems  of  business 
organization. 

Leaving,  now,  the  historical  and  general  phase 
of  the  subject,  which  may  be  loosely  described  as 
dealing  with  business  activity  as  affected  by  outside 
forces,  let  us  turn  to  the  more  specific,  and  in  many 
ways  more  difficult  problems  connected  with  the 
internal  management  of  business  enterprises.  In  a 
sense  this  may  be  called  a  study  of  the  ways  and 
means  of  making  larger  profits.  It  involves  a  con- 
sideration of  the  methods  of  organization  that  will 
result  in  a  larger  output  with  the  same  expenditure 
of  labor  and  capital,  or  at  least  an  increased  output 
with  a  less  than  proportional  increase  in  the  labor 
and  capital  expense;  the  methods  of  avoiding  waste 
and  of  detecting  the  weak  places  in  a  system;  the 
building  up  of  defective  departments;  the  establish- 
ment of  cost  systems,  order  and  tracing  systems,  and 
other  methods  of  checking  up  that  will  reveal  the 
points  of  strength  and  weakness;  organization  of 
selling  departments,  advertising  systems,  and  prob- 
lems of  general  executive  policy. 

In  the  beginning,  emphasis  must  be  laid  on  the 
fairly  obvious  fact  that  there  exists  no  perfect  body 
of  rules  that  apply  inflexibly  to  all  forms  of  business 
organization.  Most  business  concerns  have  been  built 
up  gradually,  and  the  particular  skill,  training  and 
experience  possessed  by  the  men  at  the  helm  will 
often  have  a  tremendous  influence  on  the  efficiency  of 
the  final  form  of  organization,  whether  it  resembles 


INTEENAL  ORGANIZATION  89 

one  that  would  work  well  under  average  conditions 
or  not.  The  customs  of  the  firm  may  be  so  fixed,  the 
methods  so  well  threshed  out  by  long  practice,  the 
knowledge  of  the  management's  policy  so  well  dif- 
fused throughout  the  works,  that  more  would  be  lost 
through  a  radical  change  than  would  be  gained  by  a 
system  theoretically  more  perfect.  In  many  concerns, 
and  particularly  in  small  ones,  the  special  skill  and 
personality  of  men  at  the  head  will  often  compel  var- 
iations from  the  type  that  has  been  found  best  in  the 
general  run  of  cases. 

There  is  at  present  a  tendency  among  men  who 
have  become  skilled  in  reoganizing  run-down  con- 
cerns to  attach  a  minimum  of  importance  to  the  per- 
sonal factor  in  management,  and  to  form  their  re- 
organizations in  as  perfect  and  scientific  a  manner  as 
possible.  They  say,  and  truly,  that  the  pet  plans  and 
policies  of  men  in  authority  have  proven  the  ruina- 
tion of  many  an  otherwise  sound  concern;  that  a  the- 
oretically perfect  organization  is  not  dependent  on 
the  health  and  continued  ability  of  one  or  two  men; 
and  lastly,  that  in  one  case  you  are  going  by  guess- 
work and  taking  a  chance,  whereas  in  the  other  there 
is  no  uncertainty.  It  is  undoubtedly  true  that  in  the 
past  too  much  emphasis  has  been  placed  upon  man- 
agement by  the  individual,  upon  trusting  one  man  to 
carry  all  the  ins  and  outs  of  a  business  in  his  head, 
and  too  little  reliance  has  been  placed  in  a  scientific 
organization.  The  individual  ordinarily  has  little  in- 
fluence on  the  efficiency  of  large  organizations  of  long 
standing;  but  in  a  small  concern,  and  in  one  that  is 
newly  formed,  where  lines  of  policy  and  of  manage- 
ment have  not  as  yet  been  definitely  determined,  a 


90  BUSINESS  PEINCIPLES 

man  of  force  and  character,  one  of  exceptional  abil- 
ity in  broad  grasp  and  outlook,  will  often  accomplish 
more  as  the  autocratic  head  of  the  business  than  the 
most  perfect  system  could  do  with  the  man  subor- 
dinated to  it. 

The  business  man  who  is  looking  for  general  prin- 
ciples that  will  apply  with  invariable  success  will 
meet  again  and  again  with  instances  of  plans  and  sys- 
tems that  will  seem  to  him  to  involve  some  universal- 
ly applicable  rule.  One  finds  men  everywhere  who 
have  read  about,  or  seen  in  operation,  some  system  or 
some  feature  of  organization  which  they  have  found 
admirable,  and  which  they  proceed  to  use  wherever 
an  opening  seems  to  present  itself.  The  human  mind 
is  strongly  disposed  to  generalize;  and  in  business, 
particularly,  nearly  everybody  has  some  pet  theory, 
some  universal  panacea,  for  the  ills  that  business 
management  falls  heir  to. 

Most  men  regard  that  form  of  organization  that  is 
typified  by  the  army,  as  the  perfect  one.  The  ideal 
division  of  men  into  regiments,  and  companies,  the 
exactly  defined  duties  and  authority  of  the  com- 
manders and  officers,  the  precise  discipline  that  in- 
sures explicit  obedience  to  all  commands  of  the  supe- 
riors, suggests  to  most  people  the  perfection  of  or- 
ganized and  concerted  action.  Yet  in  many  business 
houses  too  great  adherence  to  the  military  type  has 
resulted  in  mistakes  in  management,  because  in  many 
cases  the  necessity  for  strict  control  and  sharply 
marked  lines  of  authority  is  less  than  for  specializa- 
tion of  functions  and  for  the  careful  combination  of 
different  sets  of  laborers.  Now  and  then  some  busi- 
ness man  comes  across,  in  his  records,  some  signifi- 


INTEENAL  OEGANIZATION  91 

cant  or  striking  feature  of  his  production  costs,  and 
he  begins  to  think  that  keeping  sets  of  figures  repre- 
sents efficient  organization.  While  this  may  repre- 
sent a  sound  principle  up  to  a  certain  point,  and  in 
certain  ways,  it  cannot  take  the  place  of  other  factors 
that  have  to  be  combined  with  it  to  make  it  even  use- 
ful. If  carried  out  too  far,  and  applied  indiscrimi- 
nately to  every  line  of  work,  it  may  become  about  as 
valuable  a  business  asset  as  a  collection  of  canceled 
postage  stamps. 

To  many  men  the  word  ^* system"  has  a  magic 
sound.  So  much  improvement  has  been  accomplished 
through  bringing  method  and  order  into  a  complex 
set  of  operations  that  before  had  represented  only 
doubt  and  confusion,  and  so  great  a  factor  is  it  in 
checking  loose  and  slipshod  work,  that  there  are 
many  who  regard  everything  done  systematically  as 
being  done  economically,  no  matter  how  the  principle 
is  applied.  But  like  everything  else  that  furnishes  a 
rule  to  success  in  business,  even  system  cannot  be 
carried  so  far  as  to  be  an  end  in  itself,  but  must  be 
used  with  discrimination. 

An  example  that  will  illustrate  how  a  mistaken 
elaboration  of  a  systematic  way  of  doing  things  may 
lead  to  needless  expense  may  be  taken  from  the  filing 
system  of  a  certain  mail  order  house.  Country  cus- 
tomers of  this  concern  often  send  in  letters  contain- 
ing lists  and  specifications  of  a  large  number  of  ar- 
ticles. These  letters  frequently  had  to  be  sent  out  to 
different  departments,  sent  back  with  notations  or 
remarks  by  the  department  chiefs,  and  sometimes 
kept  in  one  part  or  other  of  the  establishment  while 
the  specifications  mentioned  were  worked  out.    It 


92  BUSINESS  PKINCIPLES 

was  found  that  many  difficulties  arose  under  this 
plan.  The  letters  were  often  missing  from  the  files 
when  wanted;  and  then  if  the  filing  clerk  could  not 
remember  who  had  it  last,  a  long  search  through  the 
different  departments  became  necessary.  Often- 
times an  important  letter  was  lost  or  mislaid.  If  the 
notations  were  more  than  could  be  placed  on  the 
blank  part  of  the  letter,  the  necessary  information 
became  illegible  or  was  left  off  altogether. 

The  difficulties  were  done  away  with  in  the  fol- 
lowing manner:  On  each  letter,  as  it  was  received, 
a  specially  prepared  tag  was  pasted,  on  which  was 
stamped  the  date  when  it  was  received;  it  was  sup- 
plied with  a  serial  number,  spaces  in  which  to  note 
to  which  department  it  had  been  sent,  and  to  place 
the  date  showing  when  it  had  been  answered  and 
when  the  order  had  been  filled.  In  the  mailing  de- 
partment an  order  book  was  started;  in  this  were 
entered  the  date,  the  serial  number,  and  the  name  of 
the  writer  of  each  letter  as  it  came  in;  also  the  de- 
partment to  which  it  had  been  referred.  Every  time 
the  letter  comes  back  to  the  office  or  is  sent  to  an- 
other department,  the  entry  in  the  order  book  is 
changed.  Thus  a  careful  record  is  kept  of  every 
letter,  and  the  head  men  can  tell  in  an  instant  who 
has  had  the  letter  and  where  it  is.  An  immense 
amount  of  time  is  saved  in  this  particular  house  to 
the  men  who  before  were  compelled  to  drop  impor- 
tant work  to  run  around  in  a  blind  search  for  lost 
and  mislaid  letters.  The  scheme  adopted  saves 
money  also  in  that  important  orders  are  no  longer 
lost.  But  would  the  same  system  be  equally  effective 
if  applied  to  all  businesses  ?   As  a  general  rule  letters 


INTEENAL  OEGANIZATION  93 

are  not  liable  to  be  sent  out  to  different  departments, 
do  not  run  the  same  risk  of  being  lost  or  mislaid,  and, 
if  wanted,  are  usually  to  be  found  in  the  files  where 
they  were  placed  when  received  and  answered.  In 
most  cases,  therefore,  this  system  of  pasting  on  let- 
ters tags  to  be  filled  out,  and  of  recording  them  so 
minutely  in  an  order  book,  would  be  a  hindrance 
rather  than  a  help,  and  would  cause  needless  ex- 
pense. Yet  more  than  one  coimtry  merchant  has 
come  in,  has  admired  the  smooth-running  and  ob- 
vious advantages  of  this  arrangement  as  applied  to 
this  particular  house,  and  has  enthusiastically  in- 
stalled a  similar  system  in  his  own  establishment, 
in  spite  of  the  fact  that  the  conditions  are  differ- 
ent; and  the  only  advantage  gained  has  been  the 
feeling  of  satisfaction  that  comes  to  him  from  think- 
ing that  his  business  had  been  improved  by  the  use 
of  system. 

All  this  is  not  intended  to  be  construed  as  an 
argument  that  no  general  principles  can  be  applied 
to  organization.  The  emphasis  given  here  to  the 
diversity  of  condition  and  the  difference  in  the  pur- 
poses of  business  enterprises  is  intended  chiefly  to 
warn  the  student  of  business  principles  against  the 
tendency  to  generalize  too  much,  to  become  biased 
in  favor  of  one  remedy  or  another  without  regard  to 
their  relative  importance.  Yet  in  spite  of  the  great 
difference  in  the  purposes  for  which  business  enter- 
prises are  organized,  and  the  great  differences  in  the 
conditions  with  which  they  are  surrounded,  there  are 
certain  factors  of  organization  which  apply  to  all 
undertakings  in  some  measure  or  other.  We  know, 
for  example,  that  no  business  can  be  run  imless  it  is 


94  BUSINESS  PEINCIPLES 

organized  in  some  way  or  other.  There  must  at 
least  be  some  definite  method  or  plan,  some  mapping 
out  of  work,  some  assignment  of  duties,  or  nothing 
will  be  accomplished.  The  work  may  be  poorly  as- 
signed, the  men  chosen  to  do  it  may  not  be  the  ones 
best  fitted  to  carry  it  out,  the  assignment  of  duties 
may  result  in  a  slow  and  cumbersome  method  of  at- 
taining results;  but  if  some  plan  had  been  laid  out, 
if  the  working  force  know  at  least  approximately 
what  they  have  to  do,  an  organization  of  some  kind 
will  result. 

It  is  clear  from  the  foregoing  that  there  must  be 
some  authority,  someone  at  least  at  the  head,  to  map 
out  the  plan  of  work,  assign  duties,  and  in  some  meas- 
ure or  other  assume  responsibility  for  the  work  that 
is  being  undertaken.  We  may  go  even  further,  and 
say  that,  in  general,  there  ought  to  be  definitely 
marked  out  lines  of  authority.  The  example  of  a 
military  organization  has  taught  us  a  great  deal  of 
the  value  of  discipline,  the  effectiveness  in  adminis- 
tration of  placing  responsibility,  the  definiteness  of 
control  that  is  gained  by  subdividing  authority  and 
responsibility.  It  is  fairly  clear  that  in  a  large  or- 
ganization the  man  who  has  control  of  the  general 
policy  cannot  be  responsible  for  the  successful  car- 
rying out  of  the  petty  details;  the  authority  and  re- 
sponsibility must,  therefore,  taper  down.  The  job 
boss  in  whose  hands  is  placed  the  turning  out  of  a 
small  and  definitely  marked  out  piece  of  work,  can- 
not be  held  to  account  if  the  work  given  to  him  to  do 
should  turn  out  to  be  part  of  an  unprofitable  under- 
taking. At  the  same  time,  the  individual  workman 
who  bungles  will  hardly  expect  to  hear  from  the 


INTERNAL  OEGANIZATION  95 

president  of  the  company;  he  is  directly  responsible 
to  his  job  boss  alone.  The  smaller  men  in  authority 
should  be  relieved  from  responsibility  except  in  the 
fields  for  which  they  are  fitted.  The  constant  dis- 
putes that  always  arise  over  methods  and  ways  and 
means  must  have  a  court  of  appeal,  which  is  provided 
by  the  man  to  whom  responsibility  for  the  perform- 
ance of  that  particular  section  of  work  has  been 
delegated. 

Another  lesson  taught  us  by  the  army  is  in  the 
value  of  having  a  properly  trained  supply  of  new 
men  to  fill  superior  places  that  may  become  vacated. 
In  the  army  the  captain  of  one  moment  may  have  to 
be  the  colonel  of  the  next;  and  in  an  industrial  army 
the  machine  room  without  a  foreman  may  become  as 
helpless  as  a  company  without  a  head.  Tapering  au- 
thority never  leaves  affairs  in  such  a  state  that  the 
place  of  anyone  cannot  be  filled  without  stopping  the 
machinery  of  business. 

The  accurate  placing  of  responsibility  is  another 
important  factor  in  organization.  There  is  a  great 
incentive  to  careful  and  energetic  work  if  a  man 
knows  that  everything  he  does  is  brought  to  the 
scrutinizing  attention  of  his  superior,  when  he  knows 
that  credit  will  be  given  him  for  work  well  done  and 
a  black  mark  be  placed  against  his  name  if  he  has 
failed. 

Another  great  factor  in  organization,  that  binds 
the  whole  mechanism  together,  is  the  introduction  of 
order  and  method  in  all  parts  of  an  undertaking, 
sometimes  called  system.  It  relieves  the  man  at  the 
head  from  the  details  of  execution,  and  lets  the  man 
of  special  skill  devote  his  entire  energies  to  the  work 


96  BUSINESS  PRINCIPLES 

for  which  he  is  best  fitted.  It  prevents  the  man  who 
is  worth  $10,000  a  year  from  spending  an  hour  of 
his  time  every  day  opening  the  mail.  It  brings  to 
men  work  fully  prepared  and  ready  for  their  atten- 
tion, so  that  they  can  devote  their  whole  time  to  the 
application  of  their  particular  function.  When  every- 
thing is  moving  in  a  regular  and  accustomed  routine, 
the  waste  of  time  and  effort  that  is  involved  in  start- 
ing something  new  is  avoided.  System  attempts  to 
provide  for  everything  in  advance;  and  instead  of 
making  important  steps  depend  upon  some  man's 
fallible  memory,  it  makes  automatic  provision  for 
everything  necessary.  It  arranges  the  processes  so 
that  the  greatest  use  is  made  of  the  property  devoted 
to  the  undertaking  and  the  labor  and  capital  need  not 
remain  idle. 

In  addition  to  system  there  must  be  provision  for 
carrying  it  out.  The  discipline  that  aims  at  hold- 
ing all  to  the  chosen  system  of  working  is  as  impor- 
tant as  the  keeping  to  a  definite  plan.  Rules  and 
regulations  must  be  provided  and  enforced,  while 
the  proper  training  and  instruction  in  the  features  of 
the  system  is  essential  to  an  understanding  and  an 
intelligent  application  of  its  principles.  Nor  can  it 
be  assumed  that  after  a  system  has  been  installed  it 
can  be  left  to  take  care  of  itself.  Especially  when 
an  establishment  has  been  reorganized  upon  a  new 
and  scientific  plan,  if  minute  care  is  not  taken  to  see 
that  plans  and  specifications  and  the  details  of  the 
new  system  are  strictly  adhered  to,  it  will  be  found 
that  the  workmen,  the  job  bosses,  even  the  foremen, 
are  slipping  back  into  their  old  habits.  Watchfulness 
and  carefully  planned  supervision  are  necessary  to 


INTERNAL  ORGANIZATION  97 

keep  the  working  force  and  the  superior  officers  up 
to  the  mark  and  to  provide  against  dishonesty, 
against  errors  of  judgment  and  errors  from 
carelessness. 

Again,  experience  has  shown  that  careful  records 
must  be  kept,  that  the  cost  and  profits  of  each  article 
be  clearly  shown,  that  the  expenditure  and  results 
from  each  department  be  carefully  checked  up,  so 
that  the  business  man  may  clearly  see  which  articles 
he  is  making  the  most  profit  on,  and  which  depart- 
ment is  running  least  economically.  Valuable  analy- 
ses of  costs,  operation  by  operation,  should  show  not 
only  where  the  profit  and  where  the  loss  comes  from, 
but  should  supply  invaluable  data  from  which  to 
proceed  to  the  task  of  reducing  costs.  The  larger 
and  more  complex  the  organization,  the  greater  is 
the  importance  of  securing  accurate  cost  accounts; 
for  as  an  establishment  grows  in  size  and  complex- 
ity it  becomes  increasingly  difficult  for  the  man  at 
the  top  to  analyze  conditions  from  observation  alone. 
In  days  gone  by,  one  heard  many  tales  of  the  shrewd 
business  man  who  kept  all  the  odds  and  ends  and 
details  of  his  establishment  in  his  head  and  had  little 
need  of  carefully  analyzed  cost  systems  or  figures  of 
any  kind.  That  was  indeed  possible  when  his  only 
competitors  were  less  clever  men  who  used  the  same 
rough,  happy-go-lucky  system  that  he  used,  and 
when  the  man  who  had  any  organization  at  all  was 
so  much  ahead  of  those  who  had  less  or  none.  The 
conditions  of  competition,  and  the  growing  knowl- 
edge of  the  essentials  of  careful  organization,  are 
tending  more  and  more  to  cut  down  the  difference 
between  the  cost  of  production  and  the  selling  price. 


98  BUSINESS  PRINCIPLES 

When  this  margin  was  a  wide  one,  an  ordinarily- 
shrewd  guess  often  did  not  fall  far  enough  from  the 
truth  to  hit  outside  the  profit  making  limits.  Now- 
adays the  anxiety  to  save  a  profit  that  is  constantly 
growing  smaller  makes  rough  judgments  fatal.  Fig- 
ures of  cost  of  production,  covering  cost  of  labor,  of 
machines,  and  of  running  departments,  must  be  accu- 
rately compiled;  these  figures  must  show  unerringly 
the  points  of  high  and  excessive  costs  at  every 
stage  of  the  manufacture  or  business.  The  failure  to 
gauge  a  business  upon  mathematically  accurate  data 
may  easily  result  in  a  mistake  that  will  turn  a  fast 
disappearing  profit  into  a  loss. 

A  discouragingly  large  proportion  of  the  systems 
of  organizations  now  in  existence  are  permanently 
prevented  from  reaching  a  high  state  of  efficiency, 
owing  to  the  disputes,  disagreements,  and  constant 
ill-feeling  that  pervades  all  the  parts  of  the  body. 
Disagreement  between  employers  and  men  are  re- 
garded by  many  able  thinkers  as  inevitable.  It  is 
said  that  the  interests  of  the  two  classes  are  perma- 
nently opposed  to  each  other,  and  that  the  best  we 
can  look  for  is  a  sort  of  armed  neutrality  between 
the  two  opposing  forces.  What  the  workmen  want 
from  their  employers  more  than  anything  else  is  high 
wages,  and  the  workmen  feel  happiest  as  a  rule  when 
they  are  doing  no  more  than  other  laborers  in  similar 
lines  and  yet  receive  higher  pay.  On  the  other  hand, 
employers  are  most  concerned  to  turn  out  their  prod- 
ucts at  a  low  labor  cost,  and  the  majority  of  them 
experience  a  feeling  of  satisfaction  if  their  own  work- 
men are  receiving  lower  wages  than  those  of  their 
competitors.    As  we  shall  see  later  both  these  con- 


INTBENAL  OEGANIZATION  99 

ditions  should  be  viewed  with  apprehension,  for  they 
contain  the  elements  of  discord,  of  dissatisfaction  on 
both  sides,  and  lead  to  working  at  cross-purposes,  to 
lack  of  harmony,  and  to  lowered  efficiency  in  the 
whole  establishment. 

The  question  of  bringing  perfect  harmony  be- 
tween employers  and  men,  of  keeping  both  sides  sat- 
isfied, of  making  both  feel  that  their  interests  are 
identical,  and  of  bringing  about  a  condition  of  co- 
operation, is  too  involved  and  intricate  to  be  dis- 
cussed at  length  in  this  place.  There  are  a  number 
of  theories  and  a  large  number  of  schemes  now  in 
operation  in  actual  establishments  designed  to  bring 
about  a  spirit  of  *' team-play''  between  employers  and 
employes,  some  of  which  we  shall  have  to  consider 
carefully.  It  is  sufficient  to  point  out  at  this  place 
that  one  of  the  important  ends  to  be  achieved  by  an 
effective  organization  is  an  enthusiastic  and  unselfish 
working  together  of  all  its  parts.  It  is  obvious  that 
the  larger  the  establishment,  the  greater  is  the  diffi- 
culty of  bringing  this  about. 

One  of  the  advantages  of  a  small  concern  lies  in 
the  fact  that  the  employer  can  come  into  personal 
contact  with  all  of  his  men.  He  knows  their  family 
history;  he  knows  the  difficulties  they  have  to  meet; 
he  can  sympathize  with  them  in  their  troubles,  and 
if  a  dispute  arises  he  can  see  their  point  of  view.  In 
a  large  estabhshment,  all  this  is  changed.  The  men, 
instead  of  having  dealings  with  the  **boss''  or  the 
*' governor,''  which  are  often  terms  of  affection,  now 
regard  themselves  as  being  employed  by  some  vast 
machine,  which  they  know  as  "the  company."  The 
company  is  looked  upon  as  a  machine,  as  an  artificial 


100  BUSINESS  PRINCIPLES 

sort  of  being  that  recognizes  such  things  as  system, 
discipline,  hard  work,  but  that  has  no  place  for  any- 
thing like  mutual  interest,  working  in  harmony, 
esprit  de  corps.  Many  managers  of  even  large  es- 
tablishments have  attacked  this  problem  of  bringing 
harmony  into  the  interests  of  employers  and  of  men, 
with  varying  degrees  of  success.  Gradually  some 
principles  have  been  evolved  which  are  forming 
valuable  contributions  to  the  science  of  business  or- 
ganization. At  any  rate,  we  can  now  say  that  any 
type  of  management  in  which  each  side  spends  a  large 
part  of  its  time  thinking  over  and  talking  over  the 
injustice  and  the  hard  treatment  which  it  receives 
at  the  hands  of  the  other,  must  be  avoided.  The  best 
type  of  organization  is  one  which  calls  forth  that 
hearty  cooperation  on  the  part  of  all  its  members 
which  can  only  be  secured  through  a  genuine,  lively 
and  loyal  interest  in  the  success  and  progress  of  the 
whole  undertaking. 

The  foregoing  paragraphs  outline  in  brief  but 
pretty  definitely  the  factors  that  should  be  included 
in  successful  organization.  They  are  a  definite  pur- 
pose, superior  direction,  definite  and  fixed  responsi- 
bility, system,  and  rules  and  regulations.  To  this  we 
must  add  accurate  records  and  statistics,  including 
an  effective  cost  system;  and  last,  but  not  least,  co- 
operation, harmony,  ** team-play.'* 

These  are  the  factors  that  must  enter,  in  some 
proportion,  into  the  successful  management  of  almost 
any  enterprise;  but  when  we  come  to  determine  the 
comparative  importance  of  each  factor,  or  to  con- 
sider whether  there  may  not  be  factors  which  are 
essential  to  some  lines  of  enterprise  but  not  to  others, 


INTERNAL  ORGANIZATION  101 

we  begin  to  realize  that  the  purposes,  conditions,  and 
materials  with  which  we  have  to  deal  are  in  no  two 
businesses  alike.  If  we  were  to  attempt  to  make 
complete  analysis  of  all  the  factors  by  which  business 
success  can  be  achieved,  it  would  be  necessary  to  con- 
sider every  factor  of  every  business  now  being  con- 
ducted, and  that,  too,  not  alone  but  in  connection 
with  all  the  conditions  by  which  it  is  surrounded  and 
all  the  influences  by  which  it  is  affected  and  to  which 
it  has  to  adapt  itself. 

There  are  certain  principles,  as  we  have  seen, 
which  can  invariably  be  applied  in  some  proportion 
or  other,  some  features  which  all  organizations  have 
or  ought  to  have  in  common.  As  we  cannot  deal  with 
these  principles  as  they  work  out  under  all  condi- 
tions, we  shall  have  to  simplify  our  task  by  making 
use,  as  far  as  possible,  of  types.  Probably  the  most 
general  type  and  the  one  with  which  the  largest  num- 
ber of  people  are  familiar,  is  that  of  a  manufacturing 
industry.  In  applying  our  general  rules  for  organi- 
zation and  profit-making,  there  are  several  advan- 
tages in  using  the  manufacturing  industry  as  a  model 
on  which  to  rest  our  principles. 

1.  Not  only  is  it  the  one  with  which  most  people 
are  familiar,  but  it  is  the  one  that  varies  the  least 
from  all  forms  of  business  enterprise. 

2.  The  principles  discussed  in  connection  with 
our  typical  case  can  generally  be  applied  to  other 
branches.  It  will  be  necessary  in  the  course  of  our 
discussion  to  point  out  wherein  variation  in  condi- 
tions results  in  different  application  of  principles  to 
different  lines  of  enterprise.  It  may,  indeed,  be- 
come necessary  to  devote  special  attention  to  certain 


103  BUSINESS  PEINCIPLES 

lines  of  business  which  are  themselves  more  or  less 
typical. 

3.  In  the  manufacturing  industry  the  most  scien- 
tific investigation  and  experience  in  regard  to  the 
factors  that  make  for  efficient  organization  have  been 
carried  on  and  in  this  field  the  most  trustworthy 
results  have  been  secured.  If  we  use  this  as  a  type, 
therefore,  we  shall  tread  on  more  solid  ground. 

Perhaps  it  will  clear  the  atmosphere  a  little,  and 
make  oiu*  way  ahead  more  plainly  visible,  if  we  first 
consider  some  of  the  faults  that  are  to  be  found  in 
ordinary  types  of  organization.  The  most  general 
fault  of  the  customary  system  of  management  is 
that  the  form  is  not  adapted  to  the  conditions  and 
purposes  of  the  business  and  results  to  be  achieved. 
It  has  already  been  sufficiently  noted  that  the  nature 
of  the  organization  required  to  manage  different 
types  of  business  must  vary  enormously.  In  some 
enterprises,  time  is  a  very  important  factor.  In  this 
case  there  is  need  for  a  better  command  of  affairs  by 
administrative  officers,  clearly  marked-out  lines  of 
authority,  more  definitely  placed  responsibility,  and 
greater  attention  to  discipline.  If,  for  instance,  one 
were  called  upon  to  clear  away  from  a  railroad  line 
a  mountain  of  earth  caused  by  a  landslide,  it  is  prob- 
able that  a  body  of  men  would  be  collected  and  these 
men  would  be  divided  into  companies,  each  with  a 
foreman,  and  each  company  be  divided  into  squads, 
each  with  a  job-boss.  All  these  kinds  of  units  would 
be  headed  by  men  in  absolute  authority  over  their 
units  and  with  no  relation  to  those  engaged  in  other 
parts  of  the  work  that  would  cause  complications  or 
delay.    The  end  to  be  achieved  here  is  best  effected 


INTEENAL  OEGANIZATION  103 

• 

by  a  system  of  management  that  insures  quick 
obedience  to  command  and  effective  control. 

In  the  example  cited  above,  the  advantages  of 
military  organization  are  obvious.  It  is  perhaps  not 
so  obvious  that  a  force  of  workmen  organized  to  do 
precisely  the  same  kind  of  work  under  different  con- 
ditions might  be  more  effectively  organized  in  a 
different  way.  Suppose  that,  instead  of  a  track  to 
be  cleared  away,  there  is  a  great  canal  to  be  con- 
structed— one  that  will  require  thousands  of  men, 
and  many  years  of  time.  In  this  case,  it  will  be  ad- 
visable to  bring  about  an  organization  in  which  less 
attention  is  paid  to  the  sharp  division  of  lines  of 
authority,  and  more  to  a  careful  division  of  labor,  to 
segregating  the  different  functions  of  the  men  so  that 
each  one  will  have  the  task  for  which  he  is  best  fitted. 
There  are  to-day  many  industrial  organizations  in 
which  the  employer  forces  into  prominence  the  chief 
features  of  the  military  system,  when  the  purpose  in 
view  is  much  more  influenced  for  good  or  ill  by  other 
forces,  when  the  need  for  sharp  control  is  less  than 
for  specialization  of  function  and  the  harmonious 
combining  of  the  different  parts.  In  a  great  indus- 
trial establishment,  for  example,  where  machines  are 
manufactured  that  have  a  very  close  competition 
both  as  to  quality  and  as  to  price,  the  success  of  this 
organization  depends  very  little  upon  sharp  division 
of  lines  of  authority  and  control,  but  more  largely 
upon  the  ability  with  which  the  advantages  of  the 
division  of  labor  are  utilized. 

There  are  numerous  examples  of  this;  take  the 
making  of  shoes.  Here  there  is  a  division  into  de- 
partments, but  the  different  departments  are  not  en- 


104  BUSINESS  PRINCIPLES 

gaged  in  the  same  line  of  work  nor  could  the  foreman 
of  one  department  interchange  with  the  position  of  a 
foreman  of  another.  The  making  of  the  product  has 
been  split  up  into  its  smallest  parts  and  in  each  of 
these  small  processes  the  workers  are  trained  to  the 
highest  degree  of  efficiency.  In  the  well-organized 
shop  the  workman  has  sifted  from  his  duties  all  but 
the  one  in  which  he  is  supreme.  Military  virtues  are 
here  desirable  to  the  extent  that  the  workman  is 
responsible  to  his  foreman,  but  this  feature  is  only 
incidental;  it  is  not  the  factor  that  determines 
whether  or  not  good  shoes  are  to  be  turned  out  at  a 
low  cost. 

The  success  or  failure  of  the  industry  would  not 
depend  upon  instant  obedience,  upon  a  definite  line 
of  succession  in  authority,  upon  interchangeability 
of  position  in  case  of  emergency.  Rather  would 
it  depend  upon  the  narrowing  down  of  processes  to 
make  the  most  of  each  man's  skill  and  dexterity, 
upon  study  and  care  in  purchasing,  upon  saving  time 
in  putting  the  different  parts  of  the  products  into 
the  workers'  hands,  upon  keeping  every  man  and 
every  machine  fully  occupied  so  as  to  save  interest 
and  rent,  upon  maintaining  an  efficient  sales  agency 
and  advertising  policy  so  as  to  secure  ready  market 
for  the  product. 

It  is  true  that,  even  in  an  establishment  of  this 
kind,  the  workers  are  responsible  to  the  foreman, 
and  the  foreman  himself  must  therefore  have  all  the 
abilities  of  the  workingmen,  must  be  able  to  do 
everything  he  asks  them  to  do,  must  see  that  their 
work  is  brought  to  them  and  taken  away;  and  in 
addition,  must  have  tact,  energy,  foresight,  good 


INTERNAL  OEGANIZATION  106. 

health,  and  a  number  of  other  qualities.  Many  of 
the  men  who  have  carried  on  investigation  and  ex- 
periment in  the  field  of  factory  organization  point 
out  the  fact  that  the  duties  that  must  be  performed 
by  a  foreman  constitute  in  themselves  a  violation  of 
the  principle  of  division  of  labor.  The  man  who  has 
all  the  qualities  that  go  to  make  up  a  good  foreman 
is  very  difficult  and  sometimes  impossible  to  find, 
for  the  duties  which  he  has  to  perform  are  of  almost 
infinite  variety.  Based  upon  these  theories,  which 
are  on  the  whole  sound,  has  been  built  a  system  of 
organization  which  is  almost  in  direct  antithesis  to 
the  military  type  at  every  point.  Briefly  stated,  the 
idea  is  that  the  duties  of  the  foreman  even  are  di- 
vided up  among  a  number  of  men,  and  the  workman 
instead  of  being  responsible  to  a  single  superior  for 
the  faithful  performance  of  all  the  duties  that  are 
assigned  to  him,  is  responsible  to  six  or  eight  *' func- 
tional'* bosses.  To  each  one,  of  course,  he  is  re- 
sponsible for  that  part  of  his  work  over  which  the 
boss  is  placed. 

This  form  of  organization,  known  as  functional 
management,  will  come  up  for  fuller  discussion  later. 
It  is  sufficient  to  note  here  that  wherever  it  can  be 
successfully  applied,  experience  seems  to  show  that 
functional  management  results  in  a  considerable 
economy  and  lowering  of  cost;  so  that,  as  we  shall 
see,  in  the  thousands  of  cases  where  it  could  be  suc- 
cessfully applied  but  is  not,  the  organization  is  de- 
fective in  that  it  does  not  take  advantage  of  all  its 
opportunities  of  economy  and  profit. 

Another  fault  of  the  ordinary  type  of  manage- 
ment is  that  there  is  no  method  of  securing  uniform 


106  BUSINESS  PEINCIPLES 

efficiency  in  the  different  departments.  In  a  large 
concern,  it  is  generally  true  that  one  or  two  depart- 
ments have  been  built  up  to  a  high  degree  of  effi- 
ciency through  the  energy  or  special  ability  of  some 
leader  of  more  than  ordinary  force  of  character.  As 
a  rule,  this  leader  has  risen  from  some  humble  posi- 
tion in  the  ranks  until  he  became  the  head  of  his  par- 
ticular division.  In  this  department  the  greatest 
economy  has  been  brought  about  in  the  use  of  tools 
and  machinery,  the  men  have  been  selected  from  the 
best  types  and  trained  to  work  at  their  maximum 
of  efficiency,  while  systems  of  stock  keeping  and  cost 
accounting  have  been  introduced,  so  that  wasteful 
methods  have  been  eliminated.  It  may  even  happen 
that  the  profits  of  a  whole  establishment  are  based 
upon  one  or  two  sections  that  are  managed  scien- 
tifically, while  the  other  departments  are  running  at 
a  loss  or  at  best  are  not  much  more  than  holding 
their  own.  A  great  part  of  the  loss  from  this  state 
of  affairs,  which  experience  has  shown  to  be  only  too 
common,  can  be  eliminated  or  at  least  discovered, 
by  a  system  of  cost  accounting  installed  throughout 
the  whole  establishment,  by  which  separate  accounts 
are  kept  for  each  department  exactly  as  though  it 
were  an  independent  concern.  Expert  reorganizers 
have  run  across  strange  illustrations  of  the  fallacies 
that  manufacturers  have  been  led  into  through  the 
lack  of  uniformity  in  the  development  of  the  several 
divisions  of  their  works,  when  the  efficiency  of  the 
different  departments  was  not  measured  with 
mathematical  accuracy. 

Not  long  ago  a  certain  bicycle  firm,  taking  ac- 
count of  its  sales  and  expenses  for  the  year  gone  by, 


INTERNAL  ORGANIZATION  107 

found  that  there  was  a  net  profit  of  $100,000.  Now 
the  department  that  had  to  do  with  the  manufac- 
ture of  pneumatic  tires  was  believed  by  the  foreman 
of  that  division,  and  by  the  head  of  the  concern  him- 
self, to  be  the  one  that  was  responsible  for  half  the 
profits.  It  was  decided,  therefore,  to  build  a  sepa- 
rate plant  in  which  to  carry  on  the  making  of  tires, 
while  the  other  parts  of  the  manufacture  were  con- 
tiQued  in  the  old  establishment.  At  the  end  of  a 
year,  to  the  astonishment  of  all  concerned,  the  new 
factory  went  into  the  hands  of  a  receiver,  while  the 
old  was  in  even  better  shape  than  before.  The  serv- 
ives  of  an  expert  reorganizer  were  secured,  and  all 
the  accounts  of  both  the  old  plant  and  the  new  were 
carefully  examiaed  and  compared.  The  new  fac- 
tory, run  on  the  same  lines  as  when  it  had  been 
merely  a  department  of  the  old,  showed  a  loss  of 
$25,000.  In  other  words,  the  old  concern  had  been 
making  $125,000  a  year  out  of  the  departments  that 
were  retained  when  the  new  plant  was  built,  and 
losing  $25,000  a  year  in  its  tire  division. 

The  problems  connected  with  bringing  each  de- 
partment up  to  a  fixed  standard  of  efficiency  must  be 
left  for  fuller  discussion.  The  first  step  toward 
remedying  the  fault  just  illustrated  is  to  find  out 
accurately  just  which  parts  of  an  establishment  are 
showing  the  best  results  and  which  are  below  the 
standard.  This  is  secured  by  a  departmental  effi- 
ciency record  in  which  output,  number  of  employes, 
pay-roll  and  costs  are  collected  and  compared. 

A  case  contrary  to  our  illustration  of  the  bicycle 
factory,  namely,  one  in  which  most  of  the  profits  of 
a  whole  establishment  come  from  the  superior  effi- 


108  BUSINESS  PEINCIPLES 

ciency  of  a  single  department,  is  surprisingly  com- 
mon, even  among  concerns  which  are  supposed  to  be 
well  managed.  It  frequently  happens  that  the 
able  foreman  who  has  brought  his  particular  sec- 
tion up  to  a  high  point  has  been  made  manager  of 
the  whole  establishment  on  account  of  the  special 
ability  shown  in  his  line.  An  enterprise  under  such 
a  management  will  usually  show  that  the  one  depart- 
ment in  which  the  leader  has  grown  up  reaches  a 
high  degree  of  excellence,  while  the  others  are  in- 
differently conducted.  The  manager's  success  in 
one  department,  gained  through  an  intimate  ac- 
quaintance with  all  the  smallest  details  of  that 
division  and  personal  training  of  the  workmen, 
could  not  be  transferred  to  other  parts  of  the  works 
indiscriminately.  It  is  because  there  are  so  few 
really  efficient  men,  who  are  generally  at  the  head 
of  great  concerns  where  they  cannot  come  into  per- 
sonal contact  with  the  men  and  the  small  details  of 
the  separate  departments,  that  the  need  for  a  scien- 
tific and  fundamentally  correct  system  of  manage- 
ment is  so  keenly  felt. 

The  old  idea  of  organization  made  it  a  question 
of  men  alone,  and  regarded  it  as  an  axiom  that  if  the 
right  man  be  found  the  methods  could  safely  be  left 
to  him.  The  scarcity  of  **right  men''  and  the  neces- 
sity of  spreading  the  activities  of  such  a  one,  when 
found,  over  so  wide  a  field,  brings  it  about  that  ad- 
herence to  the  old  idea  will,  in  nine  cases  out  of  ten, 
result  in  glaring  examples  of  inefficiency  in  those 
departments  with  which  the  ''right  man"  is  not 
intimately  acquainted. 

The  combination  of  competing  firms  often  fur- 


INTEENAL  ORGANIZATION  109 

nishes  pertinent  illustrations  of  how  a  single  depart- 
ment may  frequently  provide  most  of  the  profits  of 
the  whole  establishment,  while  the  rest  of  the  plant 
is  at  best  merely  not  causing  a  loss.  For  many  years 
there  were  two  furniture  manufacturers  who  carried 
on  business  in  competition  with  one  another  in  the 
same  field;  and  in  spite  of  very  obvious  disadvan- 
tages that  resulted  from  their  pulling  in  opposite 
directions,  they  could  not  be  brought  together. 

The  real  obstacle  to  amalgamation  lay  in  the  fact 
that  each  of  the  heads  of  the  two  concerns  carried 
out  a  line  of  policy  absolutely  different  from  that  of 
the  other,  and  each  thoroughly  and  heartily  believed 
that  the  other  was  wrong.  Each  of  these  men  occu- 
pied the  position  of  owner  and  manager  of  his  com- 
pany through  the  special  ability  which  he  had  shown 
while  in  the  ranks;  but  while  one  had  forced  to  the 
top  through  the  skill  he  had  shown  in  advertising, 
salesmanship,  and  the  marketing  of  products,  the 
other  had  come  up  through  the  manufacturing  end 
of  the  establishment.  They  were  finally  persuaded 
by  mutual  friends  and  well-wishers  to  combine. 
When  their  books  were  gone  over  and  compared  by 
an  expert  cost  accountant,  it  was  found  that  each 
man  had  plenty  of  ground  for  thinking  the  other 
weak  and  inefficient.  The  man  who  had  risen  from 
the  factory  end,  it  was  found,  was  making  his  furni- 
ture fully  30  per  cent  cheaper  than  his  rival;  the 
salesman  manager,  on  the  other  hand,  was  making  up 
the  difference  by  his  superiority  in  advertising,  sell- 
ing, intimate  knowledge  of  the  market  demands,  and 
efficient  organization  of  the  commercial  end  of  the 
undertaking.    The  combination  of  the  two  firms  re- 


110  BUSINESS  PEINCIPLES 

suited  in  an  economical  organization  in  each  estab- 
lishment of  the  department  which  before  had  been 
poorly  conducted,  and  a  consequent  saving  to  the  new 
concern  of  the  large  percentage  of  profits  that  had 
been  lost  when  each  was  independent. 

In  discussing  the  defects  that  are  found  in  the 
ordinary  type  of  organization,  it  is,  of  course,  under- 
stood that  every  management  must  have,  in  some 
degree  or  other,  the  special  factors  which  we  noted 
earlier  as  being  essential  to  good  organization.  To 
summarize  again,  we  may  call  them  definite  struc- 
ture, liQes  of  authority,  definite  and  fixed  responsi- 
bility, system  and  rules  and  regulations;  accurate 
records  and  statistics  and  an  effective  cost  system; 
and,  lastly,  harmony  and  cooperation  between  em- 
ployers and  men  and  between  different  departments. 
The  defects  due  to  a  lack  of  one  or  more  of  these 
factors  in  an  organization  have  already  been  partly 
indicated  in  the  description  of  them  and  will  appear 
in  greater  detail  when  we  come  to  discuss  the  best 
types  of  organization.  The  defects  discussed  under 
the  head  of  the  adaptability  of  the  type  of  organiza- 
tion to  the  purposes  and  conditions  of  the  business, 
and  the  unevenness  in  the  efficiency  of  the  manage- 
ment of  different  departments,  are  intended  in  a 
more  general  way  to  outline  the  task  before  us.  It 
may  be  worth  while,  now,  to  descend  to  particulars 
and  to  note  the  faults  to  be  found  in  the  details  of  the 
average  business. 

The  average  business  will  be  found  to  include : 
1.    Superintendent,    foremen,    job   bosses,    and 
workmen.    The  relation  of  these  to  one  another  and 


INTEENAL  OEGANIZATION  111 

to  the  business  as  a  whole,  constitute  the  problems 
of  management. 

2.  A  system  of  manufacturing,  of  handling  raw 
material  or  products,  or  of  carrying  on  the  work  for 
which  the  business  is  organized. 

3.  A  commercial  end,  by  which  we  may  desig- 
nate sales  organization,  advertising,  and  methods  of 
creating  and  reaching  the  market. 

First  we  have  to  consider  the  superintendent. 
Enough  has  been  said  already  to  indicate  the  diffi- 
culties which  are  met  with  when  the  entire  responsi- 
bility for  the  efficient  management  of  all  the  depart- 
ments in  an  establishment  rests  on  the  shoulders  of 
one  man.  It  is  obvious  that  an  effective  management 
must  devise  some  plan  by  which  the  efficiency  of  all 
departments  is  automatically  brought  up  to  a  certain 
set  standard,  and  whereby  the  maintenance  of  this 
standard  of  efficiency  rests  upon  something  more 
solid  than  the  personal  skill  or  intuition  of  a  single 
superintendent  alone.  In  the  functional  tyi^e  of 
management,  this  result  is  best  accomplished  through 
a  so-called  ^'planning  department,"  hereafter  to  be 
described,  where  the  system  for  the  operation  of  all 
departments  is  originated  and  sent  out,  and  the  re- 
sults are  recorded.  In  the  ordinary  or  military  type, 
the  superintendent  should  come  into  touch  with  the 
foremen  of  all  the  departments  in  such  a  manner  that 
the  skill,  foresight,  and  ability  of  the  superintendent, 
supplemented  by  the  intimate  acquaintance  with  de- 
tails and  personal  contact  of  the  foremen,  may  com- 
bine to  bring  the  efficiency  of  all  departments  up  to 
a  uniform  level.  This  plan,  simple  enough  on  paper, 
meets  with  many  obstacles  when  tried  in  actual  ex- 


112  BUSINESS  PEINCIPLES 

perience  and  cannot  be  put  through  by  a  cheap  or 
inefficient  man.  A  strong  and  capable  superin- 
tendent is,  as  a  rule,  cheap  at  almost  any  price.  The 
advantages  of  having  a  capable  superintendent  who 
surrounds  himself  with  efficient  foremen  to  advise 
him  upon  important  subjects,  will  bring  to  a  concern 
unexpected  advantages  besides  those  which  are  ob- 
vious. It  gives  the  foremen  an  opportunity  to  add 
to  their  knowledge  of  the  affairs  of  the  business  and 
gives  them  a  broader  outlook  upon  the  results  to  be 
accomplished,  so  that  they  are  better  able  to  work 
toward  the  end  in  view.  Then,  again,  a  foreman  who 
is  called  into  consultation  with  his  chief  is  stimulated 
to  good  work  by  the  opportunity  thus  afforded  to 
bring  his  results  to  the  immediate  notice  of  his  su- 
perior. In  the  ordinary  system,  the  foremen  peg 
along  by  themselves ;  they  are  frequently  actuated  by 
feelings  of  jealousy  toward  one  another;  by  grum- 
bling and  fault-finding  they  weaken  their  own  ef- 
ficiency and  that  of  the  entire  plant.  With  proper 
management  they  can  be  moved  to  cooperate  with 
their  superintendent,  with  each  other  and  with  the 
men  under  them,  for  the  good  of  the  firm. 

Next  to  consider  are  the  foremen.  The  question 
of  securing  efficient  foremen,  or  of  getting  the  work 
that  belongs  to  them  efficiently  done,  is  becoming 
increasingly  prominent  as  the  most  difficult  problem 
in  the  science  of  business  organization.  With  the 
tendency  of  the  age  toward  specialization  in  work,  it 
is  becoming  more  and  more  obvious  that  the  great 
variety  of  qualities  demanded  in  a  foreman,  and  the 
large  range  of  duties  that  he  is  called  upon  to  per- 
form, present  an  almost  insurmountable  obstacle  to 


INTERNAL  ORGANIZATION  113 

the  problem  of  securing  the  most  efficient  and  eco- 
nomical performance  of  a  foreman's  functions. 
These  are  the  men  who  come  into  daily  touch  with 
the  workers  at  machine  and  bench;  to  them  belongs 
the  responsibility  of  securing  the  maximum  results 
from  the  labor  force;  on  them  falls  the  task  of  bring- 
ing out  the  greatest  possibilities  of  the  machines — 
matters  which  can  be  determined  with  mathematical 
acciu*acy  (as  we  shall  see  later),  and  with  which  very 
few  of  the  ordinary  type  of  foremen  are  acquainted. 
Yet  in  the  ordinary  run  of  establishments  the  fore- 
man is  simply  a  machine  hand  or  job  boss,  who  has 
been  promoted  because  of  his  energy,  his  desire  to 
please,  or  because  he  has  long  years  of  service  behind 
him. 

The  person  selected  for  this  important  position 
may  have  only  a  knowledge  gained  from  the  running 
of  his  machine,  when  as  a  matter  of  fact  he  should 
be  thoroughly  skilled  in  the  methods  of  modern  scien- 
tific machine  practice,  should  be  in  touch  with  the 
most  modern  mechanical  processes,  should  know  the 
best  methods  of  handling  men  and  of  getting  the 
best  results  from  them,  and  should  be  able  to  super- 
vise the  timekeeping  and  fix  the  rates  of  pay.  More 
and  more  it  becomes  evident  that  profits  depend  upon 
the  selection  of  foremen  of  a  much  higher  grade  than 
has  in  the  past  been  recognized  as  necessary. 

The  standard  set  is  high,  and  there  are  few  men 
who  can  perform  efficiently  and  economically  all  the 
duties  that  their  position  calls  for.  At  least  it  may 
be  said  that  in  most  concerns  the  foremen  should  be 
selected  with  much  greater  attention  to  the  fitness 
of  their  qualities  and  training  for  the  work  that  they 


114  BUSINESS  PEINCIPLES 

have  to  perform.  Some  experienced  students  of  this 
subject,  indeed,  maintain  that  the  variety  of  work 
that  falls  to  the  lot  of  the  foreman  is  so  great  that  it 
is  impossible  for  any  one  man  to  put  it  through  in 
the  most  efficient  manner.  In  the  best  organized 
establishments  of  to-day  there  is  an  increasing  tend- 
ency to  take  away  from  the  foreman  many  of  his 
functions,  such  as  determining  the  speed  of  the  ma- 
chines and  the  types  of  tools  to  be  used,  fixing  the 
rates  of  pay,  and  other  things.  This  plan  of  dividing 
the  functions  of  the  foreman  up  into  separate  opera- 
tions and  putting  each  function  into  the  hands  of  a 
man  who  is  skilled  in  his  line,  will  bring  great  econo- 
mies where  it  can  be  instituted.  It  seems  limited  in 
its  application,  however,  to  manufacturing  concerns 
of  considerable  size  where  great  masses  of  product 
uniform  in  type  and  pattern  are  turned  out.  In  many 
cases  the  more  elaborate  plan  cannot  be  carried 
through,  and  as  a  matter  of  fact  it  is  only  rendered 
necessary  by  the  weakness  of  the  ordinary  type  of 
foreman.  In  the  average  establishment  the  same 
economies  can  be  achieved  if  the  foremen  are  selected 
with  care,  if  they  are  trained  sedulously  in  the  vari- 
ous duties  they  have  to  perform,  if  they  are  stimu- 
lated to  do  their  best  in  cooperation  with  the  super- 
intendent and  the  other  foremen,  and  if  they  are 
made  to  feel  that  good  work  will  be  instantly  recog- 
nized and  rewarded. 

Last  come  the  workmen.  Probably  there  is  no 
problem  connected  with  business  organization  that 
needs  so  much  attention  and  careful  study  as  the 
scientific  management  of  the  workmen.  There  is 
no  question  that  the  average  man,  whether  he  be 


INTEENAL  ORGANIZATION  115 

millionaire  or  day  laborer,  is  inclined  by  nature 
to  take  it  easy.  It  is  only  as  a  result  of 
example  or  external  stimulant  of  a  powerful  kind 
that  a  man  can  be  induced  to  work  at  a 
more  rapid  rate.  The  result  is  that  in  a  surprisingly 
large  number  of  cases  the  workmen  are  loafing  along 
at  an  easy  gait  and  efforts  made  by  the  management 
to  get  better  results  are  so  poorly  directed  that  the 
workmen  increase  their  efforts  only  in  the  direction 
of  making  a  brave  show  of  working  at  top-notch 
speed.  The  common  tendency  to  "mark  time"  is,  as 
a  rule,  considerably  increased  wherever  a  large 
number  of  men  work  together  at  similar  work  and 
uniform  standard  rate  of  pay  per  day.  Whenever 
this  happens,  the  better  and  more  energetic  men  are 
forced  almost  to  slow  down  their  gait  to  that  of  the 
weakest  and  least  efficient.  The  workmen  as  a  rule, 
are  inclined  to  look  with  suspicion  upon  any  man  who 
is  obviously  attempting  to  outstrip  his  feUows  for  a 
number  of  reasons.  First,  it  is  believed  that  there 
is  only  so  much  work  to  be  done  and  if  one  man  does 
twice  as  much  as  the  average  his  work  will  tend  to 
throw  an  average  man  out  of  employment.  Second, 
the  presence  of  a  man  who  is  doing  extra  well  fur- 
nishes to  the  employer  an  argument  why  all  the 
other  men  in  the  shop  should  follow  his  example. 
Then,  too,  when  a  naturally  energetic  man  works  for 
a  few  days  alongside  of  a  lazy  one  who  is  getting  the 
same  pay,  he  cannot  help  feeling  that  half  of  his 
hard  work  is  going  for  nothing. 

The  remedy  for  this  state  of  affairs  will  occur  to 
anyone;  namely,  that  the  reward  should  be  propor- 
tionate to  the  work  performed.    This  desirable  state 


116  BUSINESS  PEIKCIPLES 

of  affairs  has  been  sought  generally  by  the  installa- 
tion of  piece-work  system.  In  theory,  payment  by 
piece-work  is  intended  to  give  the  workman  a  direct 
share  in  any  increased  production  which  he  may 
bring  about,  by  more  intelligent  or  increased  exer- 
tion. As  applied  in  most  shops,  the  piece-work  sys- 
tem results  in  high  labor  cost  to  the  employer,  little 
or  no  increase  of  wages  to  the  employe,  and  conse- 
quently very  little  satisfaction  to  either  side. 

Thus  we  see  that  whether  the  labor  force  is  work- 
ing under  ordinary  day  work  or  on  piece  system, 
there  is  an  equal  temptation  to  idleness  and  an  equal 
tendency  to  reduce  the  profits  of  the  employer 
through  high  labor  cost.  Manufacturers,  business 
men,  and  students  of  labor  problems  all  over  the 
country  are  showing  a  lively  awakening  to  the  great 
losses  that  have  been  needlessly  suffered  under  the 
prevailing  system  of  paying  wages,  and  the  different 
plans  that  have  been  devised  to  remedy  the  situ- 
ation under  varying  conditions  will  demand  careful 
consideration.  Under  conditions  as  they  exist  to-day 
the  foreman  sets  prices  by  methods  strictly  their 
own;  the  employer  suffers  continued  losses  through 
high  labor  cost  and  limited  output  and  the  workman 
idles  away  his  time  at  machine  and  bench  as  the  only 
way  open  to  him  to  get  even  with  the  management 
for  its  unfair  treatment. 

The  defects  of  business  organization  which  are 
connected  with  manufacturing,  with  handling  the 
stock,  or  with  carrying  on  the  work  for  which  the 
business  is  organized,  may  be  traced  to  three  sources ; 
namely,  carelessness  or  ignorance  in  regard  to  sys- 
tem, to  accounting,  and  to  manufacturing  methods. 


INTEKNAL  ORGANIZATION  117 

Let  US  begin  with  those  specific  faults  of  system 
which  are  connected  with  the  handling  of  the  raw 
material  or  product  in  the  establishment. 

Almost  every  business  man  makes  a  practice  of 
taking  an  inventory  of  his  stock  on  hand  at  least 
once  a  year.  This  is  usually  accomplished  by  a  com- 
plete or  partial  shutting  down  of  the  business  for 
several  days,  and  does  him  little  good  except  to  show 
him  what  stock  he  has  on  hand  and  how  much  he  has 
made  or  lost  at  the  end  of  the  year's  operation;  yet 
it  is  not  only  entirely  practicable,  but  very  profit- 
able, to  make  an  inventory  each  month  of  the  stock 
bought,  sold  and  on  hand.  Such  a  system  will  pre- 
vent large  purchases  of  goods  which  must  remain  on 
hand  for  a  long  period  of  time,  unnecessarily  in- 
creasing the  amount  of  working  capital  required  and 
the  charges  for  interest. 

Another  fault  of  system  is  connected  with  the 
tracing  of  products  in  their  progress  through  an  es- 
tabhshment.  Few  concerns  realize  the  necessity  of 
keeping  accurate  records,  showing  exactly  which 
point  has  been  reached  by  the  unfinished  product, 
how  far  it  has  advanced  in  its  way  toward  comple- 
tion, and  how  soon  it  may  be  finished.  Yet  the  fail- 
ure of  more  than  one  concern  has  hinged  upon  its 
tardiness  in  filling  orders  and  fulfilling  its  contracts 
as  to  delivery,  which  might  have  been  avoided  by 
careful  attention  to  a  system  of  tracing  stock.  Like 
the  monthly  inventory  system,  this  plan  also  will 
affect  a  saving  in  the  amount  of  capital  invested:  it 
will  show,  for  example,  if  any  products  are  lying  idle 
because  no  provision  has  been  made  to  finish  them. 


118  BUSINESS  PEINCIPLES 

and  in  any  case  a  good  tracing  system  tends  to  keep 
stock  moving. 

Something  has  already  been  said  as  to  the  great 
importance  of  the  cost  system  in  keeping  the  effi- 
ciency of  different  departments  up  to  a  uniform  level. 
But  a  thorough-going  application  of  system  to  the 
problems  of  cost  of  manufacture  must  not  stop  here. 
Most  types  of  management  are  lamentably  lax  in  the 
matter  of  keeping  accurate  records  of  the  work  per- 
formed by  the  individual  laborers.  Yet  if  this  be 
not  done,  the  business  man  will  find  himself  up  in 
the  air  at  the  very  outset  of  any  reorganization  aimed 
to  reduce  cost  of  production.  A  campaign  of  this 
kind  must  usually  start  by  increasing  the  efficiency 
of  the  working  force  and  eliminating  the  inefficient 
men.  If  the  individual  records  of  the  men  are  not 
kept,  there  is  no  basis  except  guesswork  on  which 
to  start  campaigns  of  improvement. 

Another  advantage  of  great  importance  to  be 
gained  by  keeping  individual  records  for  the  work- 
men is  the  effect  of  such  records  upon  the  workmen 
themselves.  The  man  who  knows  that  an  accurate 
tabular  account  of  his  value  or  his  incompetency  is 
kept  and  carefully  inspected  by  his  superiors,  will 
be  under  a  much  more  powerful  incentive  to  do  good 
work.  If,  in  addition,  increase  of  pay  and  chance 
of  promotion  are  made  directly  contingent  upon  good 
records  as  shown  in  the  cost  sheets,  the  tendency 
toward  idleness  or  slovenly  work,  even  under  an 
unsatisfactory  or  antequated  system  of  pay,  will  be 
materially  reduced. 

It  is  hardly  necessary  to  point  out  that  every 
manufacturer,  in  these  days  of  close  competition, 


INTERNAL  OEGANIZATION  119 

should  keep  an  accurate  itemized  acccount  of  the 
cost  of  every  article  turned  out.  The  advantages 
of  so  doing  are  too  obvious  to  need  conunent  and  yet 
how  many  failures  are  caused  by  nothing  less  than 
the  selling  of  products  at  prices  lower  than  the  actual 
cost  to  make  up  the  goods.  Manufactiu*ers  should  be 
able  to  tell  at  any  time  the  cost  of  any  article  made ; 
should  have  records  showing  how  much  an  unfinished 
article  has  cost  up  to  the  present  and  how  much  more 
it  will  cost  to  finish  it.  It  is  by  such  records  alone 
that  he  will  be  able  to  keep  within  proper  limits  his 
costs  of  production. 

Defects  in  manufacturing  methods,  such  as  can 
be  brought  into  a  general  discussion  of  business 
principles,  must  be  limited  to  a  consideration  of  how 
to  get  the  best  results  from  the  cooperation  of  ma- 
chines and  men  and  in  assembling  the  final  product. 
A  lack  of  scientific  management  in  the  matter  of  cost 
system  and  payment  of  wages  will  invariably  lead  to 
weaknesses  in  the  economical  handling  of  machines 
and  tools  and  the  processes  of  production.  It  is  aston- 
ishing to  find  out  what  a  lack  of  information  there 
exists  in  regard  to  the  amount  and  kind  of  work  that 
may  be  turned  out  from  the  proper  use  of  machines. 
In  fact,  there  are  very  few  establishments  in  the 
country  where  sufficient  experiments  have  been  car- 
ried on  to  show  exactly  at  what  speed,  with  what 
power  and  under  what  conditions  a  machine  will 
turn  out  the  most  work.  In  most  cases  this  very  im- 
portant matter  is  left  in  the  hands  of  the  foremen, 
who,  without  knowledge  or  experience  as  to  the 
methods  of  finding  out  what  can  be  done,  make  what 
they  think  a  shrewd  guess  and  let  it  go  at  that. 


120  BUSINESS  PRINCIPLES 

Even  worse,  the  foreman  sometimes  leaves  the  whole 
matter  to  the  Individual  preference  of  the  workmen. 
If  defects  of  this  kind  were  not  so  widespread  in 
general,  one  would  wonder  that  ninety  or  ninety-five 
per  cent  of  the  manufacturers  of  the  country  do  not 
go  to  the  waU.  For  success,  it  must  be  remembered 
no  company  need  be  better  organized  than  its  com- 
petitors. 

The  methods  of  accurately  determining  just  how 
much  work  a  machine  is  capable  of  turning  out  under 
best  conditions  need  not  be  discussed  at  this  point. 
It  may  be  well,  however,  to  point  out  by  an  example 
or  two  just  what  is  meant.  Suppose  that  a  foreman 
superintends  twenty  men  shoveling  sand,  and  wants 
to  get  the  best  results  from  the  use  of  the  shovels. 
Now,  one  might  think  that  good  results  would  accrue 
from  letting  each  man  use  a  shovel  of  the  size  and 
shape  that  he  might  prefer.  Experience  has  shown, 
however,  that  the  best  results  are  obtainable  only 
by  experiment.  The  men  should  be  provided  with 
shovels  of  different  sizes  and  shapes,  and  each  of 
these  should  be  employed  for  a  certain  length  of  time. 
On  each  variation  of  pattern  and  size,  accurate  time 
measurements  with  a  stop  watch,  measuring  say 
the  time  required  to  fill  a  wheelbarrow,  should  be 
recorded.  The  comparison  of  all  the  statistics  so 
gathered  will  show  what  should  be  the  shape  of  the 
shovel,  and  how  much  it  should  hold  if  the  maximum 
results  are  to  be  secured.  A  certain  contractor  in 
Massachusetts  carried  on  experiments  for  three 
years  with  different  shapes  and  sizes  of  shovels,  and 
discovered  that  one  containing  22  pounds  measured 
the  scientific  load  on  which  the  average  man  can  do 


INTERNAL  ORGANIZATION  121 

his  maximum.  It  need  not  be  pointed  out  that,  side 
by  side  with  this  process  of  selecting  the  proper 
shaped  tool  to  be  used,  there  should  go  on  the  process 
of  selecting  also  the  proper  men.  This  may  be  done 
by  keeping  individual  records  of  the  work  of  each 
man,  as  already  pointed  out. 

In  the  case  of  machines  of  more  complexity  than 
we  find  in  the  simple  pick  or  shovel,  the  securing 
of  scientific  results  is  not  so  easy,  but  is  correspond- 
ingly more  important.  The  difficulties  are  increased 
here  by  the  large  number  of  variables  that  have  to 
be  considered.  In  recent  years,  extensive  investi- 
gations have  been  made  in  regard  to  machines  for 
metal  cutting.  It  was  found  that  the  variables  to 
be  considered  in  this  case  ran  about  as  follows:  1, 
Shape  of  cut;  2,  kind  of  metal  being  cut;  3,  shape  of 
tool;  4,  kind  of  steel  in  tool  and  metal;  5,  depth  of 
cut;  6,  power  of  machinery;  7,  rapidity  of  turn;  8, 
effects  of  soda  water  or  other  cooling  chemical. 

From  what  has  been  said,  it  may  easily  be  seen 
that  the  ordinary  type  of  foremen,  anxious  as  he 
may  be  to  do  well  and  to  make  a  good  showing,  has 
no  means  of  securing  the  necessary  training  and  ex- 
perience to  bring  about  the  proper  results.  When 
such  matters  as  cutting  speed,  depth  of  cut,  angle  of 
cut,  and  other  important  variables  are  left  to  guess- 
work, it  is  no  wonder  that  upon  scientific  investiga- 
tion, losses  of  fifty  and  sixty  per  cent  in  the  efficiency 
of  machines  are  found.  For  many  types  of  machin- 
ery, careful  investigations  by  skilled  engineers  have 
already  been  made  out  and  results  tabulated.  The 
foremen  should  be  acquainted  not  only  with  the 
methods  of  securing  scientific  data  of  this  kind,  but 


122  BUSINESS  PEINCIPLES 

should  be  trained  to  recognize  the  value  of  and  use 
such  results  as  have  come  or  may  come  to  their 
hands. 

The  situation  relative  to  the  use  of  the  proper 
machining  methods  is  well  illustrated  by  the  ex- 
perience related  by  Mr.  C.  U.  Carpenter,  in  his  book 
on  *' Profit-making  in  Shop  and  Factory  Manage- 
ment.'' *'I  recently  installed,"  says  Mr.  Carpenter, 
**in  certain  factories  several  large  boring  mills  and 
heavy  planers,  built  by  two  of  the  highest  grades  of 
manufacturers.  In  order  to  test  the  amount  of 
knowledge  possessed  by  the  manufacturers  of  these 
machines  they  were  called  upon  for  advice  as  to  the 
best  results  that  could  be  secured  from  them  when 
working  under  differing  conditions.  Simple  ques- 
tions were  asked  as  to  the  speed  and  depth  of  cut 
possible  in  order  to  secure  the  best  results.  These 
builders  of  the  tools  could  not  give  a  definite  answer 
that  would  be  of  any  material  assistance  to  anyone 
needing  light.  They  knew  that  their  machine  tools 
*ran  as  fast  and  would  turn  out  as  much  work,  etc.,' 
as  any  in  the  market;  but  when  it  came  to  the  ques- 
tion of  shapes  of  tools,  depth  of  cuts,  results  upon 
differing  grades  of  metal,  results  from  the  use  of 
water  and  composition  on  the  tool,  and  so  on,  they 
floundered  hopelessly.  The  lack  of  knowledge  of 
the  best  results  obtainable  is  not  by  any  means  con- 
fined to  the  older  types  of  shops.  There  is  many  a 
factory  to-day  which  to  the  eye  presents  a  modern 
appearance,  with  its  new  buildings,  well-ventilated 
and  cleanly,  its  fine  equipment  in  machinery  and 
tools,  and  its  show  of  bustle  and  hustle,  which  yet 
needs  the  doctor's  care  badly." 


INTEENAL  OEGANIZATION  123 

With  foremen  so  utterly  unversed  in  the  fine 
points  of  their  work,  can  it  be  wondered  at  that  ex- 
pert organizers  often  find  differences  of  30  per  cent 
and  more  in  the  working  efficiency  of  the  machines 
under  different  men,  and  report  establishments 
where  the  best  guess  made  as  to  conditions  of  max- 
imum output  falls  twenty  or  twenty-five  per  cent 
short  of  what  it  should  be. 

There  is  little  need  to  dwell  at  length  on  the 
shortcomings  that  make  their  appearance  in  the 
commercial  ends  of  a  business — the  buying,  and  par- 
ticularly the  selling,  departments.  Business  enter- 
prises differ  so  greatly  in  this  respect  that  it  is  dif- 
ficult to  pick  out  any  features  that  will  be  common 
to  all.  To  some  kinds  of  business  houses  the  buying 
and  the  selling  are  the  whole  thing — the  retail  de- 
partment store,  for  example,  is  organized  for  no 
other  purpose  than  to  buy  and  sell  again,  its  services 
consisting  only  in  adding  utilities  of  time  and  place 
to  an  already  manufactured  product.  Nevertheless 
it  is  true  that  there  is  hardly  any  business  enterprise 
which  does  not  find  the  purchasing  of  raw  materials, 
machinery,  furniture,  and  so  on,  and  the  selling  of  a 
finished  product  very  important  parts  of  its  func- 
tions. In  the  early  days  of  the  handicraft  system  it 
was  the  practice  for  the  customer  to  bring  raw  ma- 
terial and  pay  for  having  it  worked  up.  Nowadays 
all  business  enterprises  buy  something  and  sell 
something  again. 

In  regard  to  the  buying  department,  the  defects 
in  most  concerns  can,  as  a  rule,  be  reduced  to  two. 
First,  it  is  liable  to  degenerate  into  a  ** dickering" 
department,  filled  with  men  who  have  great  faith  in 


124  BUSINESS  PRINCIPLES 

their  powers  of  bargaining,  but  who  unconsciously 
cost  their  company  thousands  of  dollars  through  de- 
veloping the  wrong  kind  of  qualities  and  knowledge. 
Strange  to  say,  the  importance  of  the  purchasing  de- 
partment is  underestimated  more  than  that  of  any 
other  in  the  majority  of  cases,  in  spite  of  the  fact  that 
one  would  think  that  heads  of  business  firms  ought 
to  be  more  keenly  alive  to  opportunities  for  effecting 
economies  and  saving  profits  in  the  buying  of  ma- 
terials than  in  other  less  obvious  ways.  Clearly 
it  is  impossible  for  one  man  to  possess  all  the  techni- 
cal knowledge  necessary  to  enable  him  to  select  just 
what  is  required  in  relation  to  the  ends  to  be  accom- 
plished and  the  surrounding  conditions;  yet  we  find 
employers  curiously  indifferent  on  this  important 
point,  and  buyers  as  a  rule  concentrating  their  ener- 
gies on  driving  a  close  bargain,  with  little  regard  for 
the  value  to  the  firm  of  the  articles  for  which  they  are 
bargaining. 

What  is  needed  in  many  cases  is  a  full  and  com- 
plete system  of  instruction  sheets  for  buyers,  com- 
piled and  inspected  by  the  heads  of  the  departments 
who  are  most  intimately  acquainted  with  the  nature 
and  specifications  of  the  articles  needed.  The  buyer 
should  have  full  and  complete  information  as  to 
where  he  can  find  out  what  he  needs  to  know,  and 
the  value  of  his  work  should  be  judged  not  by 
what  kind  of  a  price  he  has  secured  but  by  the  close- 
ness with  which  he  has  approximated  meeting  the 
specifications  required  in  the  article  purchased.  By 
these  means  mistakes  such  as  the  one  made  by  a 
buyer  for  a  certain  manufacturing  plant  will  be 
avoided.    This  man  had  a  great  deal  of  confidence — 


INTEENAL  ORGANIZATION  125 

not  unjustified — in  his  ability  to  force  down  prices. 
Instructions  were  sent  to  him  to  purchase  a  large  lot 
of  steel  shafts  of  certain  size  to  be  used  in  the  man- 
ufacturing of  a  machine  product  which  his  firm  was 
turning  out.  He  proceeded  on  most  approved  lines 
to  secure  bids  from  several  different  firms;  and  by 
playing  one  off  against  the  other,  he  finally  pur- 
chased them  at  a  very  low  price,  and  moreover  se- 
cured an  immediate  delivery.  Shortly  after  that  he 
was  called  into  the  manager's  presence  to  receive, 
as  he  supposed,  commendation  for  his  good  work. 
What  was  his  surprise,  therefore,  to  be  met  by  a  sour 
countenance  and  the  cold  statement  that  the  firm  was 
out  several  hundred  dollars  on  his  bargain,  for  the 
simple  reason  that  soft  steel  shafts  would  have 
served  the  purpose  as  well  as  the  high  grade  hard 
steel  ones  purchased.  The  manager  blamed  the 
buyer  for  not  knowing  what  was  wanted,  and  for 
making  no  effort  to  find  out;  the  buyer  blamed  the 
department  head  who  had  sent  instructions  so  vitally 
defective. 

Both  were  right.  Information  as  to  purchases 
should  be  set  down  clearly  and  unmistakably,  and  in 
such  a  way  that  the  buyer  can  co-operate  with  every 
department  intelligently.  On  the  other  hand,  the 
buyer  should  be  trained  to  consider  that  the  most  im- 
portant part  of  his  duties  consists  in  following  in- 
structions intelligently,  in  being  certain  that  his  in- 
formation as  to  purchases  is  absolutely  accurate  and 
in  keeping  in  touch  with  the  various  departments  so 
that  he  will  know  at  least  the  outline  of  the  processes 
of  production  and  what  kinds  of  materials  will  meet 
conditions. 


126  BUSINESS  PRINCIPLES 

Another  important  part  of  the  buyer's  duty  is  to 
keep  in  touch  with  what  there  is  in  the  market,  how 
it  may  be  secured,  and  what  relation  these  products 
may  have  to  the  needs  of  his  firm.  The  buyer,  as 
well  as  the  management  itself,  should  be  extremely 
well  posted  in  regard  to  the  latest  processes  of  man- 
ufacture and  the  latest  improvements  in  tools  and 
equipment.  The  makers  of  tools  and  raw  materials 
are  ordinarily  under  a  double  temptation  to  persuade 
the  buyer  to  stick  to  the  old  ruts  and  follow  pre- 
cedents slavishly. 

In  the  first  place,  if  improved  processes  have 
created  a  demand  for  a  new  kind  of  tools  and  equip- 
ment, the  makers  of  these  things  are  naturally  anx- 
ious to  dispose  of  the  old  stock  and  will  make  the 
strongest  kind  of  appeal  to  the  ambition  of  a  buyer 
who  wishes  to  acquire  a  reputation  as  a  shrewd  and 
clever  bargainer. 

Second,  raw  material  and  tool  and  equipment 
manufacturers  seldom  find  it  to  their  interest  to  en- 
courage the  adoption  of  new  processes  or  a  demand 
for  new  tools.  They  have  money  tied  up  in  old  pat- 
terns, in  old  stock,  in  machines  going  through  the 
process  of  manufacturing,  and  in  their  own  equip- 
ment. Changes  of  a  radical  nature  would  prove  a 
serious  matter  to  them. 

Moreover,  it  is  too  often  true  that  the  progres- 
sive firm,  the  one  which  stands  immediately  in  readi- 
ness to  adopt  improvements  and  make  desirable 
changes,  finds  itself  alone  in  the  field.  Until  the  de- 
mand of  this  firm  for  new  tools  and  equipment  has 
been  supplemented  by  that  of  sufficient  others  to 
compel  the  manufacturer  of  such  products  to  turn 


INTERNAL  OEGANIZATION  127 

them  out  on  a  large  scale,  every  effort  will  be  made 
to  induce  the  progressive  management  to  stick  to  the 
old.  If  improvements  are  to  be  put  through,  the 
buyer  must  be  taken  into  the  manufacturer's  confi- 
dence, must  be  made  to  see  exactly  what  it  is  in- 
tended to  accomplish,  and  must  be  fortified  against 
the  attempt  of  other  firms  to  sell  him  something 
different  and  against  his  own  ambition  to  make  his 
name  famous  as  a  shrewd  bargainer. 

Another  mistake  often  made  in  connection  with 
the  purchasing  deartment  is  that  of  giving  to  this 
department  charge  of  the  receipt  and  storing  of  ma- 
terials. It  is  true  that  in  many  cases  departments 
cannot  be  sharply  divided  off  in  such  a  way  that 
there  is  a  separate  division  for  every  small  function 
of  a  firm's  necessary  operation;  but  the  importance 
of  separating  the  purchasing  department  from  that 
which  has  charge  of  the  receiving  and  storing  of  the 
incoming  stock  is  not  often  realized.  The  accounts 
of  the  purchasing  body  and  that  of  the  receiving  de- 
partment must  be  kept  absolutely  separate  if  the 
management  desires  to  avoid  not  only  confusion  and 
waste,  but  absolute  dishonesty.  If  the  purchasing 
body  is  given  charge  of  the  care  of  material,  the  op- 
portunity for  graft  is  too  immediate  and  too  tempt- 
ing for  even  the  most  honest  to  resist.  There  is  not 
only  in  some  cases  the  danger  of  having  things  car- 
ried off  and  **lost," — I  almost  said  strayed  or  stolen, 
— but  it  becomes  the  easiest  thing  in  the  world  to 
devise  an  amalgamated  system  of  bookkeeping  by 
which  things  are  really  paid  for,  apparently  received, 
but  actually  never  seen  in  fact.  The  experiences  of 
receivers  and  expert  accountants  teem  with  instances 


128  BUSINESS  PEINCIPLES 

in  which  the  whole  purchasing  department  of  an  ap- 
parently well-managed  concern  is  honeycombed  by 
a  system  of  private  rebates,  corruption  money,  and 
** doctored"  accounts.  There  should  be  a  divorce 
effected  between  the  purchasing  department  and 
receiving  department  to  prevent  such  collusion;  and 
this  rule  should  be  followed,  no  matter  how  small  the 
plant. 

At  the  other  end  of  the  commercial  function  of  a 
business,  appears  the  side  which  has  to  do  with  the 
marketing  of  the  product.  The  most  crucial  defects 
connected  with  the  marketing  of  the  product  appear 
in  the  methods  of  the  sales  department.  Few  busi- 
ness men  are  aware  of  the  possibilities  that  lie  in  the 
scientific  development  of  this  end  of  the  concern. 
The  prevailing  impression  is  that  salesmen  are  born 
and  not  made.  It  cannot  be  denied  that  this  impres- 
sion is  not  without  foundation.  A  certain  great  poli- 
tician once  said  of  his  father  that  he  was  the  best  silk 
salesman  in  Massachusetts.  It  was  true  that  he  knew 
very  little  about  silk  fabrics,  but  he  had  about  him 
that  impressive  personality,  that  individual  mag- 
netism, that  pushing  force  of  character,  which  made 
people  want  to  do  what  he  wanted  them  to  do. 

If  the  sales  manager  can  collect,  organize,  and 
send  out  a  force  of  such  men,  well  and  good.  The 
trouble  is  that  most  managers,  in  attempting  to  do 
this,  run  across  the  same  sort  of  difficulties  that 
would  be  met  by  a  man  attempting  to  organize  a  com- 
pany of  ex-presidents,  or  that  Frederick  of  Prussia 
encountered  when  trying  to  form  a  regiment  of 
eight-foot  soldiers.  The  ordinary  salesman  must 
form  an  effective  member  of  a  fighting  or  a  selling 


INTEENAL  OEGANIZATION  139 

force,  not  because  he  is  a  giant,  but  because  he  has 
the  training  and  knowledge  and  skill  requisite  for 
fighting  or  selling.  Few  sales  managers  realize  the 
gulf  of  difference  there  is  between  a  man  who  merely 
quotes  prices  and  waits  for  something  to  happen,  and 
the  man  who  sells  the  goods  over  his  competitor's 
head  because  he  can  talk  the  business.  Innate  sell- 
ing ability  need  not  be  entirely  disregarded  in  hiring 
men.  The  organizer  of  an  army,  though  he  cannot 
rely  on  eight-foot  regiments,  does  not  on  that  ac- 
count accept  weaklings;  but  an  inborn  selling  per- 
sonality must  be  bulwarked  by  a  thorough  training 
in  all  the  talking  points  of  the  product  to  bring  the 
best  results.  The  good  salesman  should  know  all 
the  faults,  and  the  good  points  as  well,  of  rival  prod- 
ucts; he  should  know  beforehand  all  the  objections 
he  will  have  to  meet;  he  should  have  from  the  ex- 
perience of  all  the  best  men  who  have  been  over  the 
ground  the  most  successful  methods  of  displaying 
the  merits  of  the  goods  to  a  prospective  customer. 
Lack  of  system  in  this  department,  as  in  many 
others,  is  often  the  stumbling  block  in  the  way  of 
best  results.  The  manager  who  will  employ  a  new 
salesman,  give  him  a  few  samples  and  a  pricelist, 
and  send  him  out  to  do  business,  need  not  wonder  if 
the  territory  is  not  being  covered  or  the  customers 
not  being  reached.  The  first  requirement  is  thor- 
ough and  organized  training  of  the  selling  force. 
Next,  the  records  returned  by  the  salesmen  should 
show  at  once  whether  the  ground  is  being  covered, 
whether  all  possible  customers  are  being  handled, 
and  whether  competition  is  being  met.  In  far  too 
many  firms  the  salesmen  are  encouraged  to  compete 


130  BUSINESS  PEINCIPLES 

against  one  another,  under  the  false  idea  that  such  a 
system  will  so  stimulate  them  that  the  largest  vol- 
imie  of  sales  will  be  recorded.  This  system  often 
brings  it  about  that  the  salesmen  become  jealous  and 
distrust  each  other.  They  have  no  idea  at  all  of  pull- 
ing together  for  the  good  of  the  company,  and  worst 
of  all  they  keep  jealously  to  themselves  whatever 
knowledge  they  have  gained,  which  for  the  com- 
pany's good  ought  to  be  shared  by  all.  The  results 
that  have  been  achieved  by  scientific  development 
of  proper  methods  of  sales  management  have  proved 
that  this  subject  is  worthy  of  the  most  careful  and 
painstaking  study. 

The  defects  of  business  organization  that  have 
been  outlined  show  that,  from  a  broad  point  of  view, 
the  problem  before  the  business  man  is  twofold  in 
its  scope.  Before  he  can  apply  his  knowledge  of  how 
to  correct  faults,  he  must  first  know  what  is  wrong. 
The  every-day  business  man  plunges  along  in  the 
dark,  unprovided  with  the  information  that  proper 
organization,  system  and  methods  would  bring  to 
shed  light  on  his  path.  His  buying  department  may 
be  in  the  worst  kind  of  confused  and  leaky  condition, 
but  he  does  not  know  it;  the  factory  methods  may  be 
costly  in  the  extreme,  but  he  may  not  know  why,  or 
how  to  better  them;  his  salesmen  may  be  blandly 
quoting  prices,  while  his  competitor  writes  down  the 
orders  secured  by  a  trained  selling  force.  Worse 
than  the  man  who  realizes  where  his  losses  come 
from  but  does  not  know  how  to  stop  them,  is  the 
executive  who  does  not  realize  the  inefficiency  that 
prevails  in  all  the  divisions  of  his  establishment,  and 
who  cannot  see  beyond  the  fact  that  profits  are  on 


INTERNAL  OEGANIZATION  131 

the  thin  edge  which  divides  a  plus  quantity  from  a 
minus  quantity. 

Such  a  one  should  go  into  his  business  thoroughly. 
He  should  attempt  to  discover,  first,  if  all  the  factors 
that  go  to  making  a  strong  organization  are  present 
in  his  concern.  Then  he  should  trace  out,  one  by 
one,  the  weaknesses  that  are  found  in  so  many  of 
the  average  plants.  Lastly,  he  should  compare  his 
business  with  a  successful  one  in  the  same  line, 
choosing  for  this  purpose  one  in  which  the  foremen 
are  trained  in  the  latest  and  best  methods  of 
handling  men  and  machinery;  in  which  the  workers 
are  happy  in  giving  their  best  energies  to  f mother 
the  company's  progress;  and  in  which  '^ system*'  in 
cost  methods  and  reports  not  only  discovers  the 
weak  places,  but  points  out  the  lines  of  progress, 
prosperity  and  profits. 


CHAPTER  VI. 

MILITARY  ORGANIZATION. 

A  detailed  account  of  what  is  meant  by  the  mili- 
tary type  of  organization  is  hardly  necessary.  The 
idea  is  borrowed,  as  the  name  implies,  from  the  di- 
visions of  the  army.  The  ideal  type  involves  three 
features : 

1.  Division  of  the  workmen  into  companies,  of 
companies  into  regiments  or  departments;  and  so  on; 
each  smaller  unit  being  comprised  in  a  larger. 

2.  A  similar  division  of  the  executive  and  ad- 
ministrative force;  that  is,  the  superior  officers. 

3.  Clearly-defined  duties,  exactly  graded  au- 
thority, and  carefully  modulated  responsibility  on 
the  part  of  all  the  members  of  the  organization. 

The  industrial  army  is  patterned  more  or  less 
after  the  military  type.  There  are  divisions  of  men 
into  separate  departments.  These  larger  units  may 
be  still  further  subdivided  into  smaller  units,  and 
the  smaller  imits  again  may  be  marked  off  into 
** gangs."  So,  too,  with  the  officers;  there  must  be 
an  executive  head  or  president.  Under  him  come 
superintendents,  managers,  foremen,  and  job  bosses. 
But  it  must  be  understood  that  the  functions  of  the 
industrial  army  and  of  the  fighting  machine  are  en- 

133 


134  BUSINESS  PEINCIPLES 

tirely  different.  With  the  latter,  the  product  comes 
in  one  supreme  moment;  the  whole  success  or  failure 
of  the  military  organization  is  shown  by  its  effective- 
ness at  a  critical  time.  For  this  reason  everything 
in  the  military  system  is  subordinated  to  obedience, 
to  certainty  and  definiteness  of  procedure,  and  to  im- 
mediate response  upon  command.  Moreover,  in  the 
military  organization,  the  parts  are,  upon  the  whole, 
interchangeable.  The  leader  of  one  division  may  be 
transferred  to  another  without  serious  danger  of  loss 
of  efficiency.  Now,  the  product  of  the  industrial 
army  flows,  as  a  rule,  in  a  continuous  stream.  As 
there  is  ordinarily  little  need  for  the  severe  line  in 
which  everything  is  sacrificed  to  instant  obedience 
to  command  and  certainty  of  procedure  in  emer- 
gency, there  is  no  need  for  the  workers  or  the  officers 
to  be  interchangeable;  and  the  flow  of  product  is 
increased  by  the  specialization  of  effort  and  the  ap- 
plication of  the  principles  of  division  of  labor  in  the 
management. 

So  much  we  already  know.  It  is  understood  that 
there  can  be  no  industrial  organization  founded  ex- 
actly upon  the  military  type,  because  the  purposes 
of  the  two  are  so  entirely  different.  Neither  can  an 
organization  depart  entirely  from  the  army  pattern 
because,  after  all,  there  must  be  a  head  or  executive 
to  direct  affairs;  there  must  be  officers  and  lines  of 
command  and  responsibility;  there  must  be  divisions 
of  workmen  into  smaller  units  and  tapering  au- 
thority, in  any  industrial  organization. 

It  is  evident  that  no  hard  and  fast  lines  can  be 
drawn.  There  are,  however,  many  business  enter- 
prises in  which  the  military  type  predominates,  in 


MILITARY  ORGANIZATION  135 

which  quick  obedience  to  command  and  sharp  lines 
of  authority  are  essential  to  carrying  out  the  pur- 
poses of  the  organization. 

There  are  some  enterprises  in  which  the  product, 
if  it  does  not  exactly  come  in  an  emergency  or  in  a 
sharp  crisis  in  which  the  organization  stands  or  falls 
according  as  it  can  be  immediately  controlled  and 
shifted  about,  still  may  require  to  be  put  through 
in  the  shortest  possible  time  or  within  a  certain  time 
limit.  In  such  an  enterprise,  usually  all  hands  must 
turn  to  the  accomplishment  of  a  single  object;  parts 
of  it  that  might  be  produced  far  cheaper  if  there  was 
plenty  of  time  to  train  workers  and  build  machines 
for  the  production  of  those  parts,  must  be  brought 
into  existence  at  once  by  the  unskilled  members  of 
the  regular  army.  What  is  lost  in  the  greater  cost 
of  production  may  be  made  up  in  the  time  saved. 

It  is  true  that,  in  most  lines  of  business,  time 
enters  as  a  factor.  Contracts  have  to  be  filled,  work 
rushed  through;  parts  may  have  to  be  constructed 
without  so  much  regard  to  the  cost  as  to  the  time 
saved.  As  we  have  seen,  too,  all  organizations  par- 
take more  or  less  of  the  military  scheme.  We  shall 
be  compelled,  therefore,  to  apply  the  term  military 
to  all  organizations  that  are  built  more  distinctively 
on  division  into  units,  tapering  responsibility  and 
authority  of  officers,  and,  in  general,  the  features 
that  remind  us  forcibly  of  the  army  structure. 

The  other  kinds  of  industrial  organisms,  those 
from  which  the  military  features  are  not  indeed  ab- 
sent, but  in  which  they  are  subordinated  to  other 
things, — ^to  deliberate  production  systematized  in  all 
its  details  for  the  lowest  construction  cost,  and  par- 


136  BUSINESS  PEINCIPLES 

ticularly  to  division  of  functions  in  the  management, 
— we  shall  consider  a  departure  from  the  military 
type. 

It  is  fairly  evident  from  what  has  been  said,  that 
in  proportion  as  an  organization  adheres  to  the  mili- 
tary type,  there  is  a  gain  in  quickness  of  evolution 
and  operation,  but  a  corresponding  loss  in  the  cost 
of  production.  The  alliance  between  lengthened 
processes  and  cheaper  cost  of  production  represents 
a  truism  that  has  pervaded  all  oiu*  economic  life  since 
the  beginning  of  time.  The  Indian  woman  who 
grinds  her  own  wheat  into  flour  between  two  stones 
goes  through  all  the  processes  necessary  to  turn 
grain  into  meal  in  a  few  minutes.  Yet  if  all  the  flour 
of  the  civilized  world  were  ground  that  way  it  would 
verily  be  worth  its  weight  in  gold,  so  great  would  be 
the  expense  of  making  it.  As  it  is,  months  and  even 
years  ago  there  were  started  the  operations  that  have 
combined  to  produce  the  50c  sack  of  flour  that  comes 
from  the  grocer's.  The  iron  and  framework  for  the 
grinding  machines,  hoppers,  elevators,  bins,  and  so 
on,  had  to  be  mined,  molded  and  put  together  many 
months  before  the  actual  process  of  making  flour 
was  commenced.  The  grain  has  been  transported 
long  distances,  has  gone  through  hundreds  and  even 
thousands  of  hands,  and  has  undergone  many 
changes  in  many  processes  before  the  flour  appears 
at  your  door. 

As  in  the  economic  world,  taken  as  a  whole,  so  it 
is  in  individual  business  enterprises.  If  colonists  on 
a  small  island  were  in  immediate  need  of  meal  and 
flour,  and  had  a  supply  of  corn  and  grain,  they  would 
take  steps  to  produce  what  they  wanted  in  the 


MILITARY  ORGANIZATION  187 

quickest  possible  time.  Little  attention  would  be 
paid  to  division  of  labor,  to  training  special  work- 
men in  the  smaller  subdivisions  of  the  operations,  to 
installing  machinery  and  securing  the  maximum  out- 
put at  the  lowest  cost.  If  any  organization  at  all 
were  attempted,  it  would  closely  resemble  the  mili- 
tary type.  The  workers  would  be  parceled  out  into 
divisions,  each  with  a  chief;  and  these  divisions 
would  be  divided  into  squads,  each  with  a  foreman. 
All  formalities,  system,  and  *'red  tape"  would  be 
omitted.  The  accomplishment  of  the  end  in  view, 
namely,  the  immediate  production  of  the  flour, 
would  be  given  precedent  over  all  considerations  of 
cheapened — ^but  more  lengthy — processes.  So,  too, 
the  miller,  if  there  were  a  famine  in  the  land  which 
demanded  instant  increase  in  the  supply  of  flour, 
would  very  probably  give  up  his  plans  for  installing 
new  processes  and  new  machines  for  a  time,  would 
make  sharper  lines  of  authority  among  his  foremen 
and  bosses,  and  would  specialize  not  in  the  direction 
of  cheapness  but  of  speed. 

There  are  a  large  number  of  organizations  to-day 
whose  functions  demand  careful  attention  to  this 
question  of  speed  of  output.  This  is  particularly 
true  of  building  and  construction  work,  the  erection 
of  light  and  power  plants,  bridges,  amusement  parks, 
and  similar  work.  It  is  true  of  businesses  that  have 
to  make  special  products  of  such  a  nature  that  they 
cannot  be  standardized,  or  turned  out  in  large 
amounts  of  a  single  pattern.  It  is  often  Jtrue  of  ex- 
cavating and  wreckage  work,  and,  in  general,  of  work 
that  is  not  likely  to  be  frequently  repeated.  The 
same  is  generally  true  of  establishments  whose  prod- 


138  BUSINESS  PEINCIPLES 

ucts  are  easily  affected  by  changes  of  fashion,  or 
who  must  be  in  readiness  to  seize  the  opportunities 
for  profit  offered  by  exceptional  sudden  demands 
for  certain  products.  In  all  these  cases  it  may  be 
necessary  to  give  less  attention  to  such  specializa- 
tion of  effort  and  cheapened  processes  of  production 
than  other  situations  would  demand;  it  may  pay 
to  take  chances  of  less  thorough  deliberation  of 
plans;  the  lines  of  authority  may  be  more  sharply  de- 
fined, so  that  questions  may  be  decided  quickly  and 
no  time  lost  in  referring  dubious  matters  to  men 
higher  up  for  confirmation.  An  organization  of  this 
kind  is  equipped  to  secure  dispatch  at  the  cost  of 
economy  in  details. 

It  is  sufficiently  obvious  to  anyone  that  there  will 
be  a  distinct  loss  in  efficiency  if  an  organization  does 
not  conform  to  the  type  best  fitted  to  the  end  in  view. 
Suppose,  for  example,  a  peculiar  style  of  hat-band 
should  come  into  fashion  during  a  summer  season. 
It  would  be  possible  to  manufacture  these  in  a  most 
economical  manner  so  far  as  cost  of  production  is 
concerned,  by  installing  new  machinery,  devising  the 
process  most  saving  of  labor  and  material,  putting 
in  specially  skilled  designers,  dividing  the  processes 
of  making  the  product  into  the  smallest  possible 
operations,  and  training  workmen  to  a  high  degree 
of  skill  in  each  subdivision  of  the  work.  By  the  time 
all  this  organization  and  system  had  been  built  up, 
the  manufacturer  would  be  in  a  position  to  turn  out 
the  kind  of  hat-band  required  at  perhaps  one-half 
the  cost  per  unit  of  product  that  his  competitors 
must  pay  with  other  methods.  Yet  long  before  he 
was  ready  to  put  his  product  on  the  market,  other 


MILITAEY  ORGANIZATION  139 

firms  would  have  satisfied  the  seasonal  demand.  His 
special  machinery  would  be  worthless,  his  specially 
trained  workmen  and  designers  would  be  organized 
for  the  production  of  a  product  for  which  the  de- 
mand had  ceased.  The  prize  and  the  profits  would 
go  to  those  who  had  been  organized  for  dispatch 
rather  than  economy.  The  manufacturers  who  had 
used  their  old  designers,  who  had  whipped  their  old 
force  into  line,  though  without  special  training,  for 
the  immediate  production  of  the  new  article,  who 
had  specialized  in  the  direction  of  quick  hat-bands 
rather  than  cheap  ones,  these  would  reap  the  harvest 
of  profits. 

The  case  just  presented  is  an  extreme  one,  but  it 
contains  a  valuable  lesson.  Nothing  could  be  more 
instructive  in  this  connection  than  the  history  of  the 
firms  that  were  called  into  being  by  the  craze  for 
bicycle  riding  in  this  country  a  few  years  ago.  The 
first  bicycles  were  made  by  general  manufacturing 
firms,  not  especially  equipped  for  turning  the  prod- 
uct out  in  large  amounts.  As  is  well  known,  prices 
as  high  as  $125.00  and  more  were  paid  for  the  earlier 
machines.  As  time  went  on,  more  and  more  of  the 
parts  of  which  a  bicycle  is  composed  became  stand- 
ardized, and  could  be  turned  out  in  large  amounts. 
Prices  went  down.  Firms  were  organized  to  make 
a  specialty  of  manufacturing  bicycles.  Gradually 
the  military  type  of  these  organizations  changed  in 
many  cases  to  a  structure  laying  most  stress  on  great 
specialization  of  labor  and  machinery.  Great  plants 
were  built,  in  which  such  functions  as  designing,  buy- 
ing, selling,  and  so  forth  were  segregated,  and  every 
advantage  was  taken  of  special  knowledge  and  skill, 


140  BUSINESS  PEINCIPLES 

SO  as  to  turn  out  bicycles  at  a  low  cost.  But  the  firms 
which  abandoned  the  military  structure  were  brought 
up  short  when  the  bicycle  craze  moderated  its  in- 
tensity. The  heavy  investments  of  capital,  and  the 
long  and  carefully-built-up  organization,  so  well  fit- 
ted in  the  end  to  produce  bicycles  cheaply,  were  not 
only  turning  out  a  product  for  which  there  was  no 
demand,  but  were  unfitted  to  produce  anything  else. 
Those  who  wisely  kept  their  heads  and  the  military 
structure,  were  in  a  doubly  better  position  than  that 
of  their  rivals.  By  the  quicker,  if  less  economical 
organization,  they  seized  the  first  profits  of  the  tem- 
porary demand.  When  the  demand  died  down,  their 
organization  of  machinery,  workmen  and  equipment, 
which  was  not  so  highly  specialized  and  was  capable 
of  quick  evolution,  could  be  applied  without  much 
loss  to  the  production  of  articles  similar  to  bicycles, — 
to  motorcycles,  automobiles,  and  the  like. 

Illustrations  of  the  disadvantages  of  not  adhering 
to  the  military  type,  under  certain  conditions,  must 
not  be  taken  to  mean  that  there  are  not  other  con- 
ditions under  which  it  is  fatal  to  retain  too  many  of 
its  features.  The  opposing  form  of  organization, 
known  as  *  Afunctional,''  offers  so  many  attractions 
in  the  way  of  lowered  cost  of  production  and  high 
profits,  that  many  expert  organizers,  who  have  met 
with  success  in  abandoning  military  features  almost 
entirely,  advocate  *  Afunctional"  management  unre- 
servedly. They  say  that  there  is  an  immense  loss  in 
efficiency,  the  country  over,  because  of  inefficiency  on 
the  part  of  foremen,  superintendents  and  managers, 
since  the  duties  of  officers  in  charge  are  so  widely 


MILITAEY  OKGANIZATION  141 

different  and  various  that  no  one  man  can  perform 
them  all  satisfactorily  or  economically. 

It  is  hard  to  deny  that  much  of  their  contention 
is  true.  Wherever  it  can  be  applied,  functional  man- 
agement is  a  tremendous  saver  of  costs.  But  as  we 
have  seen,  there  are  many  kinds  of  enterprises  where 
success  lies  in  other  directions  than  mere  lowered 
cost  of  product.  Then,  again,  fimctional  manage- 
ment can  be  successful  only  in  a  very  large  estab- 
lishment manufacturing  standard  articles  little  sub- 
ject to  change  or  variation.  Lastly,  as  we  shall  see, 
military  management  is  not  inconsistent  with  very 
considerable  specialization  of  skill  and  effort  on  the 
part  of  the  workmen,  with  best  and  most  modern 
machines  and  processes  and  methods  of  manufacture. 
The  vital  spot  where  it  is  said  to  be  weak  in  the  mat- 
ter of  economy  of  production,  as  compared  with  the 
functional  type,  lies  in  the  foreman  system.  The 
ordinary  foreman  and  manager  cannot  possibly  know 
all  of  the  factors  that  make  for  efficiency  of  produc- 
tion, it  is  claimed;  and  even  if  he  could  know  them, 
he  has  so  many  duties  of  such  different  kinds  to 
perform  that  no  man  could  do  everything  efficiently. 

How  this  is  taken  care  of  in  the  case  of  functional 
management,  we  shall  see  later.  The  truth  remains 
that  the  majority  of  establishments  in  this  country 
are  based  on  the  military  type.  It  may  be  true  that 
many  of  them  are  military  because  proprietors  do  not 
know  any  better  system;  never,  perhaps,  even  heard 
of  any  other.  Wherever  practicable,  the  functional 
type  is  better;  but  it  is  practical  and  safe  in  so  small 
a  number  of  cases  at  present,  that  the  problem  be- 
fore the  average  business  man  relates  to  the  develop- 


142  BUSINESS  PEINCIPLES 

ment  of  his  business  as  it  is  to  its  fullest  power  and 
possibilities  of  profit.  Even  in  cases  where  func- 
tional management  is  hoped  for  ultimately,  the  first 
steps  must  be  toward  correcting  the  many  and  costly 
defects  of  the  ordinary  type  of  organization.  Di- 
vision of  functions  and  specialization  of  skill  in  the 
management  represent  a  final  stage  which  may  well 
be  applied  after  a  thorough  and  effective  analysis  of 
the  economies  that  may  be  introduced  in  other  lines 
has  been  made. 

In  taking  up  this  line  of  study,  it  will  be  neces- 
sary to  go  back  to  our  fundamental  type — the  or- 
ganization of  an  industrial  manufacturing  concern. 
It  wiU  be  understood  that  the  problems  of  every 
business  man  vary  with  the  conditions  of  his  busi- 
ness. It  may  be  that  those  who  are  engaged  in  an 
enterprise  in  which  conditions  are  widely  dissimilar 
from  those  of  a  manufactiu^ing  concern  will  not  at 
first  see  what  particulars  in  the  study  now  to  be 
taken  up  contain  valuable  information.  Yet  as  we 
have  seen,  there  are  many  points  of  resemblance  in 
all  business  enterprises,  and  there  are  certain  fea- 
tures that  must  be  applied  in  aU  successful  organiza- 
tions. Each  man  that  wishes  to  conduct  his  business 
in  the  most  economical  way,  to  increase  his  profits 
and  extend  his  influence,  must  give  the  closest  atten- 
tion to  a  careful  analysis  of  his  own  methods  of 
operation.  Yet  it  will  give  great  assistance  to  any- 
one to  have  examples  before  him.  To  see  what  has 
been  done  in  other  lines  will  often  suggest  in  a  truly 
startling  manner  what  may  be  done  in  another  field. 
The  application  of  the  general  principles  of  organi- 


MILITAEY  ORGANIZATION  143 

zation  may  have  to  vary  in  different  cases  to  secure 
the  maximum  results,  as  a  suit  of  clothes  conforming 
to  the  general  type  may  have  to  vary  in  size  and  pat- 
tern to  hit  the  individual  taste.  But  a  tailor's  ap- 
prentice who  has  seen  one  or  two  suits  tried  on  will 
have  a  much  better  idea  of  how  to  make  a  satisfac- 
tory suit  for  his  first  customer  than  if  he  had  been 
made  acquainted  only  with  the  general  principles  of 
tailoring. 

In  introducing  changes  of  management  and  new 
profit-making  methods  in  any  business,  there  are 
several  considerations  that  must  be  taken  into  ac- 
coimt  if  success  is  to  be  expected.  In  the  first  place, 
no  plan,  however  good,  can  be  introduced  in  such  a 
way  as  to  elicit  the  opposition  of  the  personnel  of  a 
concern.  The  fondness  which  workmen,  foremen 
and  even  superintendents  have  for  old  methods  and 
time-honored  ways  of  doing  things  has  been  found 
in  innumerable  cases  to  be  an  insuperable  barrier  to 
successful  application  of  better  and  more  scientific 
systems.  The  average  foreman  resents  any  inno- 
vation which  seems  to  him  to  involve  a  criticism  of 
his  way  of  doing  things.  The  most  complete  and 
effectual  installation  of  a  new  system,  if  forced  on 
the  workers  and  foremen,  will  disintegrate,  the  mo- 
ment it  is  left  to  take  care  of  itself.  The  men  cannot 
resist  the  temptation,  in  the  stress  of  daily  work,  to 
abandon  methods  with  which  they  are  not  familiar, 
and  are  certainly  not  in  sympathy. 

Sometimes  it  happens  that  a  particularly  forceful 
reorganizer  who  has  had  vast  experience  in  installing 
new  methods,  and  who  is  confident  to  the  utmost  in 
the  scientific  capabilities  of  his  system,  will  put 


144  BUSINESS  PRINCIPLES 

through  a  radical  change  in  management,  in  the  face 
of  all  opposition.  Even  in  such  cases  it  often  takes 
yeai's  of  work  to  put  the  new  plans  through.  The 
ordinary  manufacturer  cannot  enter  into  such  elabo- 
rate plans;  and  even  if  he  could,  it  is  doubtful  if  the 
most  thorough  and  effective  system  in  the  world  will 
attain  to  the  degree  of  success  which  it  should  reach 
if  it  is  not  supported  throughout  by  the  working  and 
managing  force. 

The  human  element  must  be  considered,  then.  In 
this  connection  it  is  worth  while  to  note  that  many  a 
plan  has  gone  awry  because  of  iron-bound  **  labor 
principles"  on  the  part  of  the  workmen.  Many 
workmen  are  restricted,  both  in  the  amount  of  their 
output  and  in  their  methods  of  doing  things,  by  the 
rules  of  their  labor  unions,  or  by  instructions  from 
labor  leaders.  Many  a  manufacturer  has  to  consider 
whether  he  can  put  plans  through  for  increasing  the 
efficiency  of  his  working  force,  in  view  of  possible 
opposition  from  this  source.  Some  employers  have 
even  been  obliged  to  go  to  the  length  of  building  two 
separate  plants,  in  one  of  which  union  workmen  con- 
tinued old  methods  and  lost  him  no  more  money  than 
he  could  help;  while  in  the  other,  non-union  em- 
ployes made  high  wages,  worked  according  to  the 
latest  and  most  approved  methods,  and  returned  the 
larger  share  of  the  profits  of  the  business.  A  dis- 
cussion of  this  phase  of  the  subject  wiU  have  to  be 
postponed  imtil  we  shall  take  up  methods  of  re- 
muneration in  relation  to  labor  unions.  Difficulties 
of  this  nature  need  not  be  feared  in  connection  with 
effective  reorganization  of  the  managing  force. 

The  first  of  the  specific  faults  that  we  foimd  in 


MILITAEY  OEGANIZATION  146 

the  details  of  the  average  business,  had  to  do  with 
the  duties  and  qualifications  of  the  superintendent 
and  foremen.  It  was  pointed  out  that  these  officers 
could  not  possibly  oversee  all  the  details  of  their 
department,  and  the  result  was  a  marked  difference 
in  the  efficiency  of  various  divisions  of  the  business. 
It  is  obvious  that  any  remedy  must  combine  the  skill, 
foresight,  and  ability  of  the  superintendent  with  the 
knowledge  of  details  and  personal  experiences  of  the 
foremen  in  such  a  manner  as  to  enlist  the  hearty 
cooperation  of  all.  There  must  be  some  way  by 
which  the  superintendent  and  the  foremen  can  get 
together  on  important  subjects,  and  can  be  made  to 
feel  that  new  plans  are  being  put  forward,  not 
against  their  wishes  but  with  their  cooperation  and 
at  their  suggestion.  In  this  way,  even  inefficient 
foremen  may  be  shown,  in  such  a  manner  as  to  make 
it  seem  self -teaching,  what  the  best  methods  and  the 
best  processes  are;  how  the  men  and  the  machines 
may  be  managed  so  as  to  bring  the  greatest  output, 
and  all  the  advantages  which  come  from  giving  each 
one  the  combined  valuable  experiences  of  all. 

This  plan  enlists  the  support  of  the  men  forming 
the  management  by  giving  them  some  part  in  de- 
vising the  best  system  for  changes  in  the  establish- 
ment. If  their  advice  is  consulted  frequently  and 
thoroughly  concerning  the  difficulties  that  are  bound 
to  arise,  if  they  are  encouraged  to  suggest  ways  of 
overcoming  them,  if  they  are  tactfully  made  to  feel 
that  the  new  and  better  methods  are  essentially  their 
own,  then  the  head  of  affairs  may  feel  assured  of  a 
rapid  and  enthusiastic  progress  toward  better  con- 
ditions and  larger  profits. 


146  BUSINESS  PEINCIPLES 

It  is  fairly  clear  from  the  foregoing  that  the  re- 
sults desired  must  be  accomplished  through  an  ad- 
visory board,  or  council,  in  which  the  superintendent 
or  proprietor,  as  the  case  may  be,  and  the  heads  of 
departments,  come  together  for  consultation.  Per- 
haps the  most  completely  developed  system  for  this 
purpose  is  that  devised  and  used  by  Mr.  C.  U.  Car- 
penter, described  in  a  series  of  articles  that  appeared 
in  The  Engineering  Magazine  in  1907  and  in  his  book 
on  *^ Profit  Making  Management,''  of  which  mention 
has  already  been  made.  The  size  and  composition 
of  the  advisory  board  will  vary  with  the  size  of  the 
establishment  and  the  nature  of  the  business.  Ordi- 
narily the  chief  executive  will  gather  about  him  one 
man  to  represent  each  of  the  various  interests  of  the 
factory — let  us  say,  the  chief  designer,  the  head  of 
the  cost  department,  perhaps  the  head  of  the  sales 
department,  and  two  or  three  of  the  brightest  and 
best  informed  foremen.  This  board  should  come  to- 
gether at  stated  times,  and  frequently — as  often  as 
twice  a  week.  Nothing  should  be  allowed  to  inter- 
fere either  with  the  meetings,  or  with  a  strict  ad- 
herence to  the  work  planned  and  to  accountability 
for  the  results  to  be  achieved.  Moreover,  at  each 
meeting  there  must  be  a  definite  outline  of  what  there 
is  to  be  accomplished  and  put  into  operation. 

Let  us  consider  for  a  moment  what  matters  ought 
to  come  before  such  a  board  for  deliberation  and 
action. 

1.  Economies  of  Production.  This  subject 
should  come  first  to  the  attention  of  the  advisory 
board.  The  problem  here  is  a  rather  complicated 
one,  because  so  many  factors  are  involved.    In  the 


MILITARY  OEGANIZATION  147 

first  place,  as  we  have  seen,  most  foremen  are  igno- 
rant of  the  methods  that  are  employed  in  the  best 
establishments  to  get  the  greatest  results  from  a 
scientific  investigation  into  the  most  economical 
operation  of  machines,  as  well  as  of  the  systems  of 
handling  men  so  as  to  bring  them  up  to  the  point  of 
maximum  efi&ciency.  Training  of  foremen,  then,  is 
one  step.  Again,  knowledge  of  the  conditions  in 
each  department  is  essential  to  efficient  handling  of 
the  problems  of  economical  production;  and  this  can 
be  gained  only  by  reports  from  the  foremen. 

The  best  plan,  perhaps,  is  for  the  superintendent 
to  bring  up  the  question,  giving  illustrations  of  what 
has  been  accomplished  in  other  plants  and  in  cases 
with  which  he  is  familiar.  This  will  bring  on  a  gen- 
eral discussion  which  will  throw  a  white  light  on  con- 
ditions in  each  department  and  the  objections  which 
the  members  of  the  managing  force  have  to  new 
methods  and  processes.  Personal  disapproval  of 
new  plans  can  be  cleared  away,  and  the  experience 
of  all  members  can  be  brought  to  bear  on  obstacles 
to  improvement.  In  the  end,  definite  plans  can  be 
decided  on  that  meet  with  general  approval. 

Among  the  economies  to  be  considered,  a  most 
important  one  relates  to  the  standardization  of  tools, 
equipment,  and  product.  Something  has  already 
been  said  about  the  economies  that  may  be  effected 
when  products  can  be  turned  out  in  large  numbers, 
of  a  single  size  and  pattern;  but  too  much  emphasis 
cannot  be  laid  on  the  fact  that  manufacturers  are 
very  slow  to  see  the  possibilities  of  saving  that  may 
be  brought  about  if  a  thorough-going  attempt  is 
made  to  standardize  products.    Year  after  year, 


148  BUSINESS  PRINCIPLES 

manufacturers  and  designers  turn  out  special  tools 
and  parts  made  on  specifications  which  are  not  uni- 
form simply  because  no  attempt  has  been  made  to 
standardize  them.  It  is  for  this  and  other  reasons 
that  the  chief  designer  or  the  manager  of  the  tool 
room  ought  to  be  on  the  advisory  board. 

2.  Reports  on  Work  Achieved.  No  improve- 
ments in  method  or  economies  in  management  can 
be  expected  to  yield  results  unless  there  is  an  effec- 
tive system  of  checking  up  on  the  progress  that  has 
been  made  and  of  holding  the  foremen  responsible. 
Progress  made  upon  new  ideas  that  have  been  de- 
cided upon  should  be  brought  before  the  eye  of  the 
chief  executive  in  concrete  and  definite  form.  The 
economies  that  have  been  assigned  to  foremen  to  put 
into  effect  will  be  buried  and  lost  sight  of  if  the  re- 
sponsibility for  progress  upon  new  plans  is  not 
definitely  placed  and  acted  upon. 

3.  Reports  should  be  made  covering  the  daily 
routine  work  of  the  different  departments.  Each 
foreman  should  evidence  the  extent  to  which  he  is 
cooperating  with  the  stock-tracing  and  order  depart- 
ments by  showing  what  goods  had  been  turned  over 
to  him,  when  the  work  was  finished  and  when  it 
ought  to  have  been  finished,  with  reasons  for  delays 
or  failure.  Reports  of  this  kind  brought  before  the 
whole  advisory  board  will  key  the  foremen  up  to 
making  the  greatest  possible  efforts  to  present  a 
clean  sheet.  It  is  easy  enough  for  a  foreman  or  de- 
signer to  explain  to  a  single  superintendent  who  is 
not  very  weU  acquainted  with  details  or  conditions 
how  it  happens  that  he  has  not  done  what  was  re- 
quired of  him,  but  it  is  a  different  matter  to  explain 


MILITAKY  OEGANIZATION  149 

the  same  thing  to  a  body  of  men  who  will  **take  him 
up  sharp"  if  he  misrepresents  facts  or  tries  in  any- 
way to  conceal  his  own  inefficiency. 

4.  Other  matters  that  may  come  before  the  ad- 
visory board  concern  the  personnel  of  workmen,  job- 
bosses,  and  so  on.  Difficulties  that  have  been  met 
with  in  handling  men  may  be  brought  up  for  discus- 
sion and  the  experience  of  the  whole  board  will  often 
be  found  invaluable  in  solving  knotty  problems,  espe- 
cially plans  that  have  to  do  with  increasing  the  effi- 
ciency of  workmen  by  changes  in  their  system  of  pay 
or  their  methods  of  doing  work — ^these  will  present 
many  a  serious  difficulty  which  will  require  all  the 
skiU,  tact,  and  experience  in  the  board  to  solve. 
Then,  again,  it  is  as  important  to  reward  the  efficient 
workmen  as  to  consider  plans  of  dealing  with  the 
recalcitrants  and  sluggards. 

In  any  shop  or  business  organization,  the  ques- 
tion of  securing  the  proper  amount  of  supervision 
over  the  workman,  so  that  each  man's  work  is  under 
the  eye  of  a  superior,  is  worthy  of  most  weighty  con- 
sideration. The  usual  plan  of  relieving  the  foreman 
from  the  duty  of  keeping  his  eye  constantly  on  all 
the  small  details  of  the  workmen's  operations  is  to 
appoint  the  more  experienced  of  the  working  force 
* 'job-bosses."  These  men  have  some  slight  degree 
of  authority;  they  do  their  share  of  the  work  like 
the  rest,  but  receive  a  slight  increase  of  pay  because 
of  their  larger  duties  and  responsibility. 

It  now  becomes  apparent  that  a  report  before  the 
advisory  board  on  the  work  of  the  efficient  men  is 
important.  The  accurate  placing  of  rewards  for 
good  work,  and  punishment  for  misbehavior,  will 


150  BUSINESS  PKINCIPLES 

work  wonders.  Foremen,  as  a  rule,  give  little  atten- 
tion to  the  appointment  of  job-bosses  and  assistants, 
thinking  it  a  matter  of  minor  importance.  The  po- 
sition, so  coveted  by  the  workmen,  is  often  given  to 
some  personal  friend,  without  much  regard  to  the 
matter  of  his  ability.  The  workmen,  seeing  that 
there  is  no  relation  between  good  work  and  promo- 
tion, lose  the  spur  that  might  otherwise  drive  them 
to  better  efforts.  Merit  and  intelligence  and  hard 
work  go  for  nothing.  To  the  management  itself  the 
appointment  of  the  minor  officials  may  be  a  matter 
of  vital  importance.  The  job-bosses  are  candidates 
for  higher  positions — ^sub-foremen,  foremen,  heads 
of  departments.  The  success  or  failure  of  a  whole 
concern  may  depend  on  whether  the  foremen  are 
able,  intelligent,  skillful. 

If  rewards  for  the  most  efficient  are  brought  up 
before  the  advisory  board,  and  each  foreman  or  head 
of  department  feels  it  incumbent  on  him  to  present 
tangible  reasons  for  promotion,  the  personnel  of  the 
minor  officials  will  be  toned  up  wonderfully.  The 
records  that  a  well-organized  concern  will  keep  of 
the  individual  work  of  the  men  will  show  at  once 
who  are  the  drones  and  who  are  the  workers.  A  fore- 
man will  hesitate  to  urge  the  appointment  of  an  in- 
ferior man  in  a  board  that  knows  or  can  easily  find 
out  who  are  the  better  men.  The  presence  of 
stronger  men  in  important  lower  positions  will  show 
at  once  an  increase  in  efficiency  or  organization. 
The  management  will  be  assured  in  addition  of 
strong  candidates  for  the  higher  and  more  impor- 
tant positions.  More  than  all,  the  bracing  effect  of 
daily  records  of  individual  work  and  of  appointments 


MILITAKY  OEGANIZATION  151 

based  on  recorded  merit  will  be  felt  all  through  the 
ranks.  The  slothful  are  spurred  to  avoid  censure  or 
loss  of  position,  the  intelligent  are  given  something 
to  strive  for.  Extra  effort  brings  reward;  the  worker 
is  given  a  chance.  Attention  to  such  small  details  as 
this,  if  nothing  else  at  all  was  done  to  improve  con- 
ditions, would  make  in  hundreds  of  cases  all  the 
difference  between  comfortable  profits  and  the 
impending  receivership. 

Stress  should  be  laid  on  the  importance  of  keep- 
ping  accurate  records  of  these  meetings.  A  good 
plan  is  to  card-catalogue  the  various  points  of  inter- 
est decided  upon,  and  to  take  up  at  each  meeting  the 
cards  for  work  projected  at  previous  meetings.  Work 
successfully  carried  through  can  be  cancelled  on  the 
cards.  Work  unfinished  can  be  charged  up  to  the 
proper  member  of  the  board  for  completion. 

It  is  extremely  difficult  to  describe  a  system  which 
will  meet  all  conditions.  Many  variations  on  the 
foregoing  plan  will  need  to  be  worked  out  by  the 
manufacturer  to  suit  the  circumstances  of  each  par- 
ticular shop  or  department.  Take,  for  example,  the 
broadest  feature  of  variation  in  different  establish- 
ments— the  matter  of  size.  The  plan  just  described 
might  be  well  suited  to  a  small  business  having  only 
three  or  four  departments,  where  the  advisory  board 
could  suitably  consist  of  all  the  foremen,  the  head 
executive,  the  man  who  had  charge  of  the  cost  ac- 
counting, and  the  chief  designer  without  making  the 
council  unwieldy  as  to  size.  Many  concerns,  how- 
ever, are  large  enough  to  have  a  number  of  superin- 
tendents or  assistant  superintendents,  with  a  large 
number  of  foremen  imder  them.    Most  companies 


163  BUSINESS  PEINCIPLES 

manufacture  several  different  kinds  of  articles,  or  at 
least  have  several  different  departments  in  which 
various  parts  of  the  product  are  turned  out.  It 
would  be  manifestly  absurd  to  have  all  the  foremen 
in  a  plant  of  this  kind  members  of  the  general  ad- 
visory board.  Even  if  there  were  no  difficulties  from 
the  mere  matter  of  numbers  little  would  be  gained 
by  bringing  together  a  large  number  of  foremen  who 
were  in  charge  of  departments  manufacturing  prod- 
ucts or  parts  of  products  widely  different  in  their 
nature.  In  the  large  packing-houses  the  problems 
facing  the  foremen  of  the  slaughtering  division  would 
have  little  in  common  with  those  presented  to  the 
managers  of  the  canning  branch.  The  advisory  board 
plan,  admirable  in  itself,  will  have  to  be  adaptable 
to  existing  conditions  if  it  is  to  meet  with  its  proper 
measure  of  success. 

In  a  large  plant  the  advisory  council  system  can 
be  made  effective  by  building  it  up  along  the  lines  of 
the  organization  itself — that  is,  by  making  it  mili- 
tary in  structure.  A  series  of  sub-councils  should  be 
brought  into  existence,  one  for  each  line  of  product 
perhaps,  or  one  for  each  division  that  will  have  in- 
terests and  problems  essentially  similar  in  character. 
In  such  a  case,  each  sub-council  will  have  at  its  head 
one  of  the  members  of  the  main  advisory  board,  the 
selection  of  such  heads  being  determined  by  their 
experience  in  dealing  with  the  particular  problems 
that  will  come  before  the  sub-councils.  The  work  of 
the  main  advisory  board  will  be  somewhat  changed 
by  this  arrangement.  Each  sub-council  will  in  a 
measure  naturally  restrict  itself  to  a  consideration 
of  the  problems  connected  with  one  branch  of  pro- 


MILITARY  ORGANIZATION  153 

duction,  while  the  main  board  will  take  a  general 
view  of  the  whole  field.  This  will  include  reports  on 
progress  made  in  the  sub-councils.  On  the  larger 
plan  the  main  board  will  have  to  delegate  a  part  of 
its  detail  work  to  the  sub-committees  and  pay  more 
attention  to  the  harmonious  cooperation  of  all  the 
various  divisions  of  the  establishment.  In  this  con- 
nection a  consideration  of  progress  made  in  each 
division  on  stock  and  contract  work  and  a  careful 
adjustment  of  the  operations  of  each  set  of  workmen 
will  become  a  special  feature  of  the  work  of  a  main 
advisory  board  in  a  large  establishment.  No  depart- 
ment should  be  crowded  with  stock  waiting  for  com- 
pletion (which  means  loss  from  tied-up  capital), 
while  the  next  in  line  is  **  waiting  for  something  to 
turnup.'* 

Every  manufacturer  knows  that  a  maladjust- 
ment of  this  kind  furnishes  fertile  ground  for  weed 
patches  in  his  field  of  profits.  Every  head  executive 
uses  his  utmost  endeavor  to  keep  all  of  his  workmen 
and  machines  fully  employed,  yet  in  spite  of  his  best 
efforts  how  often  does  he  find  it  necessary  to  run  one 
or  more  of  his  departments  overtime — on  overtime 
pay — while  in  others  the  workmen  (and  foremen 
too)  are  idling  along  trying  to  make  their  work  hold 
out!  How  can  it  be  otherwise  where  the  heads  of 
departments  are  not  brought  together  to  consider 
just  such  matters  "for  the  good  of  the  concern,"  and 
where  these  men  if  consulted  singly  are  so  jealous 
of  each  other  and  so  out  of  touch  with  conditions  in 
other  departments  that  their  advice  represents  a 
jumble  of  misinformation?  The  field  can  be  kept 
clear  of  weeds  of  this  character  if  the  men  best  ac- 


154  BUSINESS  PEINCIPLES 

quainted  with  conditions  in  each  division  of  the 
establishment  are  brought  together  in  friendly  coun- 
cil, where  the  problems  that  beset  each  are  under- 
stood by  all,  and  where  the  knowledge  and  expe- 
rience of  all  can  be  utilized  to  secure  an  economical 
adjustment  of  the  work  of  each  division.  If  in  addi- 
tion the  work  of  this  board  is  facilitated  by  accurate 
reports  on  the  movement  of  stock  and  progress  in 
all  departments  on  work  projected,  losses  from  this 
source  will  be  wellnigh  unknown. 

If  the  main  board  in  a  military  system  of  advisory 
councils  finds  its  chief  functions  in  securing  a  har- 
monious adjustment  of  the  factory  force,  and  over- 
seeing the  progress  of  the  minor  boards,  the  latter 
will  have  to  take  up  much  of  the  detail  work  before 
attributed  to  the  higher  body.  The  sub-council  will 
normally  consist  of  the  foremen  handling  one  line  of 
product  or  in  one  general  division  of  the  works.  But 
it  may  often  happen  that  matters  will  come  before 
the  sub-council  which  have  a  direct  bearing  on  the 
interests  of  the  whole  concern.  The  member  of  the 
general  advisory  board  who  is  chairman  of  that 
council  will  know  the  situation  in  this  respect.  So 
that  when  problems  come  up  that  affect  general  costs 
in  that  division,  or  records  of  costs  and  statistics,  it 
may  be  well  to  have  the  head  of  the  cost  accounting 
department  before  the  sub-council.  If  it  is  a  matter 
affecting  improvements  in  designs  or  standardization 
of  product,  the  chief  designer  may  be  called  in,  or 
the  head  of  the  tool  room,  as  the  case  may  be.  In 
general,  the  sub-council  will  take  up  matters  relating 
to  one  particular  line  in  the  same  way  that  the  main 


MILITARY  OEGANIZATION  155 

board  handles  the  entire  factory.    Subjects  for  con- 
sideration should  include: 

1.  Best  and  most  improved  processes  of  manu- 
facture, with  possible  economies  and  reduction  in 
cost.  Foremen  should  be  given  definite  work  along 
these  lines  and  should  make  full  reports  as  to  what 
has  been  accomplished.  The  reports  should  be  sup- 
ported by  figures  and  statistics  wherever  possible. 
It  may  be  well  to  have  two  divisions  of  this  work. 
One  will  deal  with  new  ideas  that  have  been  intro- 
duced and  report  on  progress  actually  made.  An- 
other part  may  consist  of  an  investigation  by  means 
of  actual  experiment  on  new  ideas  to  be  adopted  if 
found  feasible.  A  large  part  of  the  gains  in  cost  of 
production  depend  on  experiments  tending  to  show 
the  standard  times  for  machine  operations,  the  best 
time  on  piece-work,  the  size,  shape  and  composition 
of  the  tool  that  will  bring  the  best  results. 

2.  New  designs,  new  parts,  standardizing  tools, 
equipment  and  product.  Eecommendations  to  the 
designing  department  as  to  improvements  in  these 
respects  should  form  part  of  the  sub-council's  work. 

The  sub-council  must  cooperate  with  the  main 
advisory  board  in  planning  an  economical  adjust- 
ment of  work  throughout  the  factory.  The  foremen 
should  make  statistical  reports  of  the  stock  they 
have  received,  finished,  and  passed  on,  and  what 
there  is  on  hand  to  be  put  through.  Not  only  will 
full  reports  on  this  subject  help  the  main  board  in 
keeping  the  establishment  in  smooth  running  order, 
but  will  help  the  chief  executive  by  showing  whether 
or  not  each  job  is  making  progress  at  the  rate 
required  by  its  promised  time  of  delivery. 


156  BUSINESS  PEINCIPLES 

It  may  be  found  necessary  to  devote  special  at- 
tention, in  the  case  of  a  shop  with  obsolete  or  anti- 
quated pay  system,  to  the  question  of  bringing  up 
the  efficiency  of  the  working  force.  Whether  this 
can  be  done  best  by  greater  attention  to  housing, 
comfort,  and  recreation  of  the  workmen,  or  by  chang- 
ing the  pay  system,  will  depend  altogether  on  the 
nature  of  the  work  and  surrounding  conditions. 
Whichever  plan  is  adopted,  however,  the  subject  is 
one  that  requires  to  be  handled  with  the  greatest  of 
care.  It  wiU  require  all  the  skiU,  experience,  tact, 
and  spirit  of  cooperation  of  foremen  and  job-bosses 
to  handle  such  problems,  the  most  delicate  and  diffi- 
cult as  weU  as  important,  of  aU. 

In  the  matter  of  economies  in  handling  men,  the 
job-bosses  must  not  be  neglected.  In  fact,  most  new 
plans  and  projects  and  methods  of  manufacture  will 
require  the  active  cooperation  of  the  job-bosses. 
Many  plans  of  great  importance  will  fail  without 
their  help;  many  of  the  most  difficult  can  be  put 
through  if  their  hearty  assistance  is  first  secured. 
In  other  words,  any  economy  affecting  men,  ma- 
chines or  processes  ought  to  be  discussed  and  mapped 
out  with  the  job-bosses  present.  These  men  will 
feel  then  that  they  are  part  of  the  management,  and 
seeing  before  them  the  prospect  of  a  real  foreman- 
ship  as  a  reward  for  good  work,  will  put  their  shoul- 
der to  the  wheel  ^'for  the  good  of  the  company."  In 
particular  it  is  important  to  have  the  job-bosses  on 
the  management's  side  in  matters  affecting  changes 
in  systems  of  pay  or  conditions  of  work.  They  are 
the  deciding  factor  in  labor  disputes,  and  if  they  can 
be  shown  that  no  changes  proposed  are  aimed  at  in- 


MILITARY  ORGANIZATION  157 

juring  the  interests  of  the  workmen  in  any  way, 
many  a  project  may  be  put  through  in  a  manner 
satisfactory  to  all,  that  under  other  circumstances 
would  be  impossible. 

In  all  but  establishments  of  the  very  largest  size 
it  will  be  found  that  problems  common  to  all  depart- 
ments can  be  well  discussed  in  a  general  conference 
of  the  foremen.  This  should  be  held  perhaps  once  a 
month,  when  the  monthly  records  and  reports  of  the 
company  can  be  brought  up  for  consideration.  In 
such  a  meeting  each  foreman  should  be  compelled  to 
turn  in  a  report  on  the  progress  of  work  in  his  divi- 
sion. He  should  show  whether  he  or  his  department 
is  causLQg  any  delays  or  pressure  on  any  part  of  the 
plant,  and  also  indicate  whatever  difficulty  any  other 
foreman  or  department  is  causing  him.  It  might 
seem  that  here  was  an  opportunity  for  a  foreman 
to  lay  the  blame  for  poor  work  or  inefficiency  upon 
somebody  else.  Not  if  the  superintendent  and  mem- 
bers of  the  well-informed  main  advisory  board  are 
present.  Foremen  soon  learn  that  it  is  unsafe  to 
charge  their  own  failures  to  anybody  or  anything  but 
themselves.  An  honest  statement  of  whatever  diffi- 
culties have  been  encountered  in  the  work  of  the 
various  departments  naturally  leads  to  a  discussion 
in  which  the  best  plan  for  solving  the  problem  is 
evolved. 

The  records  and  reports  that  are  handed  in  to  the 
office  by  each  department  should  be  brought  into  the 
foremen's  conference  and  analyzed  in  the  presence 
of  all.  The  matters  brought  up  in  the  sub-council — 
as  to  economies  effected,  costs  reduced,  standard- 
ization and  new  designs,  output  statistics  and  move- 


168  BUSINESS  PEINCIPLES 

ment  of  stock,  expenses — all  these  can  be  brought 
before  the  general  foremen's  meeting  and  considered. 
Two  advantages  are  secured  by  this  method.  First, 
the  foreman  knows  that  what  he  is  doing  will  be  put 
in  concrete  form  before  all  the  other  foremen,  and 
before  the  superintendent  and  the  big  men  of  the 
company.  If  possible,  some  system  of  rewards 
should  be  devised  for  those  who  present  the  best 
records  and  make  most  satisfactory  progress.  Second, 
there  is  little  temptation  to  twist  facts  in  a  report 
that  is  coming  before  a  body  of  men  such  as  this, 
where  the  slightest  misrepresentation  is  liable  to 
instant  contradiction. 

It  is  unnecessary,  perhaps,  to  point  out  that 
records  of  all  the  meetings  described  should  be  kept, 
and  that  some  system  must  be  devised  for  register- 
ing responsibility  for  plans  projected.  In  the  sub- 
council  the  secretary  who  takes  the  notes  of  the 
meetings  may  get  up  a  card  catalogue  on  which  is 
kept  a  notation  of  suggested  improvements  which 
may  be  in  charge  of  the  head  of  the  council.  For  the 
foremen's  meetings  Mr.  C.  U.  Carpenter  recommends 
large  folding  blackboards  on  which  everything  en- 
tered for  carrying  through  is  sure  to  be  brought 
before  the  man  responsible  at  the  next  meeting. 
Each  assignment  of  work  stays  on  the  blackboard 
until  it  is  accomplished.  This  arouses  the  foremen 
to  use  their  best  efforts  to  accomplish  their  task  so 
it  can  be  "rubbed  off  the  slate."  The  cards  or  the 
blackboard  wiU  be  at  the  constant  service  of  the 
management,  to  show  at  once  progress  made  or  lack 
of  it,  and  notes  at  the  same  time  the  person  re- 
sponsible. 


MILITAEY  OEGANIZATION  159 

By  the  methods  above  outlined,  the  first  of  the 
specific  faults  to  be  found  in  the  ordinary  type  of 
organization  may  be  largely  eradicated.  Such  a  plan 
brings  to  superintendent  and  foremen  the  intimate 
knowledge  of  details  and  personal  acquaintance  of 
men  and  conditions  essential  to  efficient  management. 
It  points  out  at  once  the  less  able  foremen  and  the 
poorly  run  departments  and  puts  in  operation  a  sys- 
tem of  training  that  will  go  far  toward  bringing  all 
sections  of  the  works  up  to  a  uniform  standard  of 
efficiency.  It  spurs  the  foremen,  gang  bosses  and 
workmen  to  do  their  best,  since  it  shows  up  the 
weaker  men  and  provides  all  an  opportunity  to  se- 
ciu*e  immediate  recognition  of  their  worth. 


CHAPTER  Vn. 
FUNCTIONAL  ORGANIZATION. 

In  spite  of  all  that  has  been  done  and  that  may 
yet  be  done  to  obviate  the  difficulties  arising  from  the 
complexity  of  the  duties  that  fall  to  superintendents 
and  foremen,  there  are  many  who  maintain  that  the 
best  results  cannot  be  secured  without  a  radical  up- 
rooting of  the  whole  military  type  of  organization. 
A  great  industrial  establishment  whose  product  is  of 
such  a  nature  and  is  tm'ned  out  under  conditions 
such  that  the  military  virtues  dwindle  to  insignifi- 
cance as  a  factor  of  its  success,  may  indeed  gain  much 
by  abandoning  the  army  organization.  The  best  and 
most  efficiently  organized  of  military  establishments 
cannot  do  away  with  the  fact  that  a  great  range  of 
experience,  skill,  knowledge,  training,  character,  and 
ability  are  demanded  of  superintendents  and  fore- 
men. Even  in  shops  where  the  different  departments 
have  been  brought  up  to  a  uniform  level  of  efficiency 
by  teaching  and  working  up  the  less  able  of  the  fore- 
men and  head  men,  it  may  still  be  true  that  each 
foreman  has  more  to  do  than  he  can  do  well,  and  that 
the  possibilities  of  cheapness  of  production  and  high 
profits  have  not  been  fully  realized. 

A  word  of  caution  may  be  sounded  here.  The 
secrets  of  cheap  production  are  not  always  the  sec- 

161 


162  BUSINESS  PEINCIPLES 

rets  of  success  and  of  high  profits.  Not  all  business 
enterprises  succeed  best  by  producing  most  cheaply. 
Elbert  Hubbard  and  his  Roycroft  Shop  would  go 
into  bankrutcy  if  he  tried  to  introduce  all  the  ele- 
ments of  cheap  production  into  the  highly  artistic 
books  which  he  makes.  The  makers  of  fashionable 
furniture  are  content  to  abandon  most  of  the  advan- 
tages of  division  of  labor,  because  the  individuality 
secured  by  artistic  handiwork  brings  prices  so  high 
as  to  more  than  compensate  them  for  their  higher 
cost  of  production. 

Nor  is  cheap  production  always  the  most  econom- 
ical outside  the  realm  of  artistic  handiwork.  When 
a  force  of  men  has  to  be  organized  hastily  to  perform 
some  special  kind  of  work,  we  have  seen  that  the 
military  type  will  bring  the  quickest  results.  The 
rehabilitation  of  the  electric  light  stations  after  the 
San  Francisco  fire  was  brought  about  more  quickly 
by  a  severely  military  organization,  in  which  speed 
was  put  before  cheapness,  and  the  element  of  time 
was  considered  to  be  more  costly  than  that  of  outlay 
for  labor  and  material.  The  man  who  has  to  catch 
the  season's  demands  for  special  products  cannot 
stop  to  build  up  all  the  features  that  would  in  the 
end  secure  him  lower  cost  of  production. 

It  must  be  remembered  that  cheap  production  is, 
on  the  whole,  the  more  *^ roundabout"  production. 
Greater  saving  of  costs  may  very  often  be  effected 
by  a  more  elaborate  system,  greater  attention  to  divi- 
sion of  labor,  larger  investment  of  capital  in  plant 
and  machinery,  and  careful  and  long-continued  train- 
ing of  men  to  reach  their  greatest  efficiency  both  of 
manual  labor  and  management.    But  the  question 


FUNCTIONAL  ORGANIZATION  163 

arises  here,  Will  the  business  stand  it?  Is  cheap 
production  the  sole  secret  of  success  in  my  business? 
Eemember  the  case  of  the  bicycle  manufacturers  who 
made  eveiy  preparation  and  every  outlay  in  order 
to  manufacture  cheaply  in  the  end.  They  built  sub- 
stantial and  elaborate  plants,  that  were  declared  by 
mechanical  engineers  and  experts  to  be  best  adapted 
for  the  work.  They  divided  and  sub-divided  the 
processes  of  making  bicycles,  so  that  every  advan- 
tage of  specialization  of  effort  was  secured.  Fore- 
men were  training  in  all  the  elements  that  make  for 
cheap  production,  and  their  duties  were  specialized 
so  that  the  maximum  results  were  secured  in  this 
direction.  These  concerns  thought  that  they  were 
organized  for  success  in  the  highest  sense  of  the 
word;  and  almost  anyone  would  have  said,  ten  years 
ago,  that  the  best  organizations  were  those  with  most 
complete  and  model  factories,  with  workmen  and 
foremen  highly  skilled  in  their  special  work. 

We  have  seen,  now,  that  the  policy  of  leaning  on 
cheap  production  alone  was  a  poor  one.  The  activity 
in  bicycle  manufacturing  died  down.  Those  who 
foresaw  that  the  cycle  craze  was  destined  to  have  *'a 
short  life  and  a  merry  one,"  organized  as  best  they 
could  with  the  workmen  and  foremen  at  their  dis- 
posal, but  entered  charily  into  large  investments  or 
elaborate  plans  for  cheap  production.  The  concern 
that  had  at  its  head  a  good  student  of  human  nature, 
an  expert  on  the  stability  of  fads  and  fancies,  was 
really  the  most  effectively  organized.  The  cheaper, 
the  more  ''roundabout"  process  here  cost  more  than 
it  brought  in.     The  most  important  factor  deter- 


164  BUSINESS  PEINCIPLES 

milling  success  was  not  cheap  production,  but  the 
time  during  which  the  business  was  to  last. 

We  cannot  too  clearly  realize  that  in  matters  of 
business  there  are  always  many  factors  to  be  con- 
sidered; in  any  undertaking  there  are  always  many 
features  that  will  influence  the  result,  and  the  busi- 
ness man  cannot  go  ahead  blindly  in  any  direction 
that  happens  to  interest  him.  All  the  factors  must 
be  kept  in  view;  all  of  them  must  be  developed  in 
harmony.  All  elements  that  make  for  success,  even 
all  elements  that  are  indispensible,  are  not  neces- 
sarily of  equal  importance.  Improvements  along  cer- 
tain lines  must  be  proportioned  to  their  influence; 
and  where  the  further  development  of  one  factor 
begins  to  interfere  with  the  usefulness  of  a  factor 
of  greater  importance,  that  development  has  reached 
its  limit  of  usefulness.  In  the  bicycle  case,  all  the 
makers  of  bicycles  were  interested  in  cheap  produc- 
tion. It  was  an  important  factor,  and  one  that  could 
not  be  disregarded.  But  they  who  were  wise  did 
not  develop  it  beyond  the  point  where  it  interfered 
with  quick  production  for  a  temporary  market,  or 
where  it  led  to  investment  greater  than  the  total 
strength  of  the  demand  for  bicycles  would  justify. 

With  all  these  precautionary  considerations,  it 
still  remains  true  that  cheap  production  is  probably 
the  most  general  factor  of  success,  the  greatest  con- 
tributor in  the  ordinary  business  to  high  profits. 
The  old,  well-established  concerns,  turning  out  a 
standard  product  that  is  little  subject  to  seasonal 
changes  of  fashion  or  fancy,  that  meets  a  regular 
and  well-known  demand,  and  that  is  subject  to  close 
competition  as  to  quality  and  price, — these  may  in- 


FUNCTIONAL  OEGANIZATION  165 

deed  give  the  most  careful  consideration  to  all  the 
factors  that  influence  their  cost  of  production, 
whether  immediately  or  in  the  long  run.  Many- 
manufacturers  should  recognize  the  fact  that  im- 
mense gains  may  be  made  by  a  thorough  and  scien- 
tific rehabilitation  of  their  military  organizations, 
and,  indeed,  that  this  is  a  first  and  necessary  step 
toward  the  more  economical  and  more  elaborate  sys- 
tem. The  first  steps  will  have  to  be  directed  toward 
increasing  the  foremen's  efficiency,  which  is,  on  the 
whole,  the  weak  place  in  most  organizations;  the 
broader  and  more  elaborate  plan  will  fail  unless  it 
is  supported  by  intelligent  co-operation  of  the  heads 
of  departments. 

Those  who  are  most  enthusiastic  in  praise  of  the 
** functional' '  type  of  organization  claim  that  the 
duties  of  ordinary  foremen  are  so  varied,  call 
for  specialization  in  so  many  different  lines  of  work, 
and  demand  such  a  variety  of  natural  ability,  that 
only  men  of  unusual  qualities  to  start  with,  men  who 
have  had  years  of  special  training,  can  perform  the 
work  in  a  satisfactory  manner.  This  difficulty  is  an 
obvious  one,  and  one  which  almost  every  employer 
will  be  ready  to  recognize.  Possibly  the  chief  advan- 
tage of  the  committee  system  described  in  the 
previous  section  is  that  it  is  intended  to  obviate  just 
this  difficulty.  By  putting  the  promotion  of  the 
workmen  to  higher  positions  strictly  on  the  basis  of 
merit  and  ability,  as  shown  by  individual  records, 
and  by  bringing  the  matter  of  promotion  before  the 
attention  of  an  advisory  board,  a  concern  may  feel 
sure  that  the  men  chosen  for  the  positions  of  job- 
boss  and  foreman  will  be  men  of  high  natural  ability. 


166  BUSINESS  PRINCIPLES 

The  knowledge,  the  years  of  special  training,  the 
variety  of  information  in  regard  to  different  duties 
required  in  an  able  foreman,  are  also  intended  to  be 
provided  for  by  the  advisory  system.  It  cannot  but 
be  admitted,  however,  that  any  man  who  has  a  large 
variety  of  duties  to  perform  cannot  become  as  skilled 
and  capable  in  performing  them  as  if  his  work  were 
limited  to  a  more  specialized  field.  This  difficulty 
is  intended  to  be  provided  for  by  functional  manage- 
ment. 

Let  us  glance  for  a  moment  at  the  duties  required 
of  the  ordinary  foreman,  and  consider  the  qualities 
and  natural  ability  that  he  must  possess  in  order  to 
do  his  work  satisfactorily.  Broadly  speaking,  his 
duties  may  be  briefly  described  as  follows :  He  must 
map  out  the  task  that  is  to  be  performed  by  each 
workman,  and  must  see  that  each  piece  of  work  goes 
to  the  right  machine  in  its  proper  order,  and  that 
the  workman  knows  not  only  exactly  what  is  to  be 
done,  but  how  it  can  be  done  most  economically.  At 
the  same  time,  he  will  be  held  responsible  if  any 
work  is  poorly  done,  or  if  the  workman  is  allowed 
to  idle  at  his  task.  He  must  keep  an  eye  on  the  order 
of  work,  looking  at  the  departments  behind  and 
ahead  of  him,  so  as  to  provide  either  more  men  to  do 
the  work,  or  more  work  for  the  men  to  do.  The 
ordinary  foreman  must  keep  the  workmen  under  dis- 
cipline, and  must  fix  the  scale  of  wages  and  prices 
on  piecework,  besides  supervising  the  timekeeping 
and  the  getting  up  of  departmental  records. 

It  is  easy  to  see  that  only  an  exceptional  man 
can  ably  handle  this  vast  mass  of  duties.  The  fore- 
man, as  a  rule,  can  attend  to  only  a  fraction  of  the 


FUNCTIONAL  OEGANIZATION  167 

work  for  which  he  is  responsible,  and  he  leaves  the 
balance,  in  many  cases,  to  be  done  by  job-bosses  and 
workmen  as  they  see  fit.  The  scarcity  of  men  who 
are  capable  of  performing  even  inefficiently  the 
duties  that  fall  to  their  lot,  usually  results  in  adding 
to  the  mass  of  work  that  is  forced  on  such  men  as 
can  be  found.  For  this  reason,  almost  all  shops  are 
under-officered.  The  number  of  leading  men  em- 
ployed is  seldom  sufficient  to  do  the  work  eco- 
nomically. As  a  rule,  plenty  of  men  can  be  found 
who  have  one  or  two  of  the  qualities  necessary  in  a 
good  foreman,  but  there  are  very  few  men  indeed 
who  can  handle  all  the  work.  The  qualities  demanded 
for  work  of  this  kind  may  be  summed  up  as  follows: 

1.  In  the  first  place,  the  foreman  or  gang-boss 
must  be  a  good  machinist.  This  is  the  first  quality 
demanded,  and  often  the  only  one  upon  which  ap- 
pointment or  promotion  is  based;  yet  this  can  be 
acquired  only  by  long  years  of  careful  training  and 
experience,  and  it  is  possessed  by  comparatively  few 
workmen. 

2.  The  foreman  must  be  a  draftsman,  or  must 
at  least  be  able  to  interpret  drawings  in  such  a  way 
as  to  have  a  clear  picture  of  the  finished  work  in  his 
mind. 

3.  The  foreman,  in  planning  the  work  ahead, 
must  make  every  provision  for  the  economical  carry- 
ing on  of  the  work.  This  will  require  that  all  the 
proper  tools  and  appliances  shall  be  ready  to  the 
workman's  hand,  so  that  no  time  need  be  lost  in  going 
back  and  forth  for  equipment.  The  work  must  be 
set  correctly  in  the  machine,  and  the  machine  must 
run  at  the  right  speed  and  power  to  get  the  best 


168  BUSINESS  PEINCIPLES 

results.  The  ability  to  do  all  these  things  well  re- 
quires an  understanding  of  the  latest  and  most  im- 
proved processes  of  manufacture,  the  standardiza- 
tion of  machining  times,  experimental  results  on  ma- 
chines and  men  and  so  on.  This  part  of  the  fore- 
man's duties  requires  also  a  concentration  of  mind 
upon  a  multitude  of  petty  details. 

4.  Proper  care  of  the  machines  cannot  be  left  to 
the  workmen  alone.  Not  only  must  the  foreman  see 
that  broken  parts  are  replaced,  and  that  everything 
is  kept  clean  and  orderly,  but  he  must  see  to  it  that 
nuts,  bolts,  screws,  belts,  and  so  on  are  always  kept 
snug  and  fit,  so  as  to  prevent  loss  of  time  through 
breakage  or  poor  running  order.  In  many  shops  this 
work  is  of  the  highest  importance,  and  demands  the 
attention  of  a  man  who  is  neat  and  orderly  himself; 
yet  it  calls  for  such  close  atention  to  small  details 
that  it  can  only  be  given  to  a  gang-boss  to  do  the  best 
he  can  with  it. 

5.  Inspection  of  the  work  turned  out  ought,  even 
in  military  organizations,  to  be  turned  over  to  a 
special  official.  In  the  majority  of  cases  it  falls  to 
the  lot  of  the  foreman.  This  work  calls  for  honesty 
and  for  conservative  judgment.  The  temptation  to 
let  a  faulty  piece  of  work  go  through  and  take  the 
chance  of  its  being  sent  back,  rather  than  undergo 
the  expense  of  doing  it  all  over  again,  is  very  strong. 

6.  Only  a  foreman  who  is  an  energetic  and  rapid 
worker  can  secure  steady  and  rapid  work  from  the 
men  under  him.  He  must  be  ready  and  able  to  take 
up  a  piece  of  work  and  do  it  better  and  quicker  than 
the  man  to  whom  it  is  assigned.  This  quality,  which 
should  belong  to  the  "speed  boss,"  is  rarely  com- 


FUNCTIONAL  ORGANIZATION  169 

bined  with  the  painstaking  care,  neatness  and  honest 
judgment  demanded  in  the  other  duties. 

7.  Much  of  the  clerical  work  in  a  department 
falls  to  the  lot  of  the  foreman.  He  must  attend  to 
the  records  as  to  time  spent  on  each  piece  of  work 
(in  order  that  the  office  may  ascertain  exactly  its 
cost),  and  must  also  keep  separate  the  individual 
records  of  the  men.  Usually  he  has  to  set  prices  on 
piecework,  to  adjust  wages,  etc.  These  duties  call 
for  judgment,  tact,  and  fairness;  for  ability  of  a  cleri- 
cal order;  and  in  general,  for  many  qualities  which 
are  seldom  found  in  a  man  suited  for  active  executive 
work. 

All  who  have  had  experience  agree  that  a  man 
combining  all  the  qualities  that  would  fit  him  to  per- 
form the  foregoing  duties  efficiently  is  extremely 
difficult  to  find.  Mr.  Carpenter  maintains,  however, 
that  by  proper  selection  beforehand,  and  by  subse- 
quent adequate  training,  foremen  of  the  proper  type 
can  be  made, —  can  be  raised, — without  abandoning 
the  old  style  of  organization.  Mr.  F.  W.  Taylor,  in 
his  epoch-making  paper  on  Shop  Management,* 
asserts  that  while  a  man  combining  three  or  four  of 
the  qualities  desired  in  a  foreman  is  easy  to  find,  one 
combining  all  those  mentioned  would  be  manager  or 
superintendent  of  a  works  instead  of  gang-boss  or 
foreman.  The  truth  will  probably  be  found  to  lie 
between  the  two  views,  according  to  the  nature  of 
the  business,  the  character  of  the  work  to  be  per- 
formed, and  the  relative  importance  of  the  factor  of 
cheap  production  costs.    Other  things  being  equal, 

*  Transactions  of  the  American  Society  of  Mechanical  Engineers,  June, 
1903. 


170  BUSINESS  PRINCIPLES 

— a  most  important  provision, —  it  would  seem  that 
there  is  an  a  priori  argument  in  favor  of  dividing 
up  the  work  of  management  into  simple  operations, 
and  giving  each  man  a  single  function  to  perform. 
The  argument  is  the  one  drawn  from  the  advan- 
tages of  division  of  labor.  Give  a  man  a  single  opera- 
tion to  perform,  and  he  becomes  much  more  skilled 
and  expert  in  this  task  than  if  he  disperses  his 
talents  over  a  broader  field.  So  with  the  work  of 
management.  The  man  combining  three  or  four  of 
the  qualities  necessary  in  a  good  foreman  can  easily 
be  found.  If  the  work  of  management  can  be  so 
sub-divided  that  the  various  parts  of  the  work  can 
be  put  into  the  hands  of  men  of  qualifications  so 
easily  found,  a  great  saving  in  the  work  and  cost  of 
management  will  be  achieved. 

The  most  complete  and  thorough-going  develop- 
ment of  this  idea  is  due  to  the  work  of  Mr.  Fred  W. 
Taylor,  of  Philadelphia.  In  a  paper  read  before  the 
Society  of  Mechanical  Engineers,  Mr.  Taylor  devel- 
oped three  fundamental  and  epoch-making  principles 
in  business  management,  namely,  scientific  time- 
study  as  a  basis  for  fixing  piece  work,  the  task  sys- 
tem in  dealing  with  workmen,  and  functional  man- 
agement as  a  basis  for  organization.  Each  of  these 
principles  is  deserving  of  careful  description  and 
analysis.  As  we  have  now  a  fairly  clear  idea  of  the 
relative  importance  of  the  factors  that  influence  the 
type  of  organization  of  a  business  concern,  let  us  pro- 
ceed to  a  description  of  ''functional  management." 

Functional  management,  as  developed  by  Mr. 
Taylor,  involves  a  complete  abandonment  of  the  mili- 


FUNCTIONAL  OEGANIZATION  171 

tary  organization,  and  the  introduction  of  several 
radical  changes  in  the  system  of  management. 

In  the  first  place,  all  the  planning  and  clerical 
work,  which  is  now  distributed  indifferently  among 
foremen,  job-bosses  and  workmen,  is  eliminated  from 
the  other  functions  of  these  men,  and  placed  in  a 
planning,  or  ''laying-out"  department.  Removing 
the  brain  and  clerical  work  from  the  shop,  leaves 
foremen  free  to  devote  their  time  to  active  executive 
tasks;  to  securing  the  effective  carrying  out  of  the 
instructions  sent  to  them  by  the  planning  depart- 
ment. The  foreman  who  has  the  qualities  necessary 
to  put  through  definitely-received  instructions,  who 
can  train  workmen  to  do  as  they  are  told,  can  thus 
fulfill  all  that  is  required  of  him.  As  he  need  not 
have,  in  any  special  degree,  judgment,  clerical  ability, 
engineering  skill,  or  imagination,  it  will  be  far  easier 
to  find  a  wholly  satisfactory  man  for  the  place  than 
if  all  the  other  qualities  were  also  required. 

Next,  the  work  of  management  is  so  sub-divided 
that  each  man  will  have  as  few  functions  as  possible 
to  perform;  if  possible,  the  work  of  each  man  in  the 
management  should  be  confined  to  a  single  definite 
simple  task.  In  other  words,  the  principle  of  divi- 
sion of  labor  is  applied  to  the  higher  officers,  the 
managers  of  a  concern,  as  well  as  to  the  workmen. 
Hitherto,  the  orders  of  the  commander  or  superin- 
tendent have  been  passed  down  directly  through  all 
the  various  grades  of  officers  at  the  heads  of  the 
graded  groups.  Each  group  received  all  the  orders 
of  the  superintendent  through  one  man,  usually  the 
foreman  or  job-boss.  The  latter  was  responsible  to 
the  officer  next  above  him  for  the  satisfactory  and 


m  BUSINESS  PEINCIPLES 

entire  performance  of  whatever  orders  were  handed 
down;  and  so  on,  up  to  the  superintendent  again. 
This  responsibility  has  certain  advantages,  as  we 
have  seen.  This  formation  secures  quick  obedience 
to  orders;  and  as  it  prevents  too  great  specializing, 
it  can  easily  be  diverted  from  one  line  of  activity  to 
another.  It  can  take  quick  advantage  of  seasonal 
demands,  or  put  through  contracts  for  varieties  of 
goods  where  shortness  of  time  is  essential.  But  it 
may  readily  be  seen  that  an  order  affecting  the  cler- 
ical work  of  a  foreman  may  be  sent  down  from  above 
to  a  man  who,  excellent  in  other  respects,  has  no 
head  for  records  and  statistics.  A  new  design  may 
reach  a  man  who  has  excellent  executive  ability,  but 
who  is  a  poor  engineer,  with  no  imagination.  In 
cases  of  this  kind,  the  work  required  may  be  done 
quickly,  somehow;  only  in  exceptional  cases  will  all 
of  it  be  done  well.  In  functional  structure,  the  order 
for  each  different  kind  of  work  is  put  into  the  hands 
of  a  different  man,  a  man  who  is  skilled  in  doing  just 
that  particular  thing. 

In  military  management,  the  orders  sent  down, 
of  whatever  kind,  are  put  into  the  hands  of  the  work- 
man by  a  single  man.  This  man  is  the  only  one  with 
whom  the  workman  has  relations  or  to  whom  he  is 
responsible.  With  the  functional  sysytem,  the  work- 
man comes  into  contact  with  a  number  of  superior 
officers,  to  each  of  whom  he  is  responsible  only  for 
a  clearly  defined  part  of  his  duties.  He  receives  his 
daily  orders  and  help  directly  from  a  half  dozen 
or  more  foremen,  each  of  whom  does  nothing  but 
his  own  particular  line. 

The  functional  foremen,  who  take  up  the  intel- 


FUNCTIONAL  ORGANIZATION  173 

lectual  and  clerical  parts  of  the  military  foreman's 
duties,  will  work  in  connection  with  the  planning 
department  just  described.  These  will  send  out  their 
orders  and  instructions,  and  will  receive  returns  from 
the  men,  either  in  writing  or  by  means  of  printed 
cards  and  automatic  recording  machines.  The  other 
functional  bosses  will  be  in  the  shop,  in  charge  of  the 
active  part  of  the  workmen's  duties,  and  will  help 
each  man  frequently. 

The  arrangement  both  of  the  men  (as  units  or 
sub-groups  in  an  army)  and  of  the  officers  will  be 
entirely  changed  by  this  structure.  The  new  plan 
might  not  be  so  very  different  from  the  old,  if  the 
workmen  were  to  be  divided  say,  into  larger  groups, 
each  with  a  half-dozen  officers  over  it.  That  is  not 
the  idea.  The  group  system  disappears  entirely. 
The  reason  for  this  is,  that  the  duties  that  formerly 
fell  to  the  military  foreman  were  not  of  equal  impor- 
tance, and  did  not  take  equal  amount  of  time.  In 
distributing  these  duties  among  functional  foremen, 
therefore,  some  will  be  able  to  superintend  possibly 
fifty  or  sixty  men,  while  others  must  limit  their  work 
to  directing  the  operations  of  fifteen  or  twenty.  The 
foreman  who  sees  only  that  machines  are  in  good 
condition,  the  belts  tightened,  and  the  screws  in 
place,  need  see  each  man  only  once  or  twice  a  day, 
and  then  for  a  few  minutes.  Such  a  foreman  could 
perhaps  oversee  all  the  men  in  one,  two,  or  even  more 
departments,  depending  on  their  size  and  the  nature 
of  their  operations.  Other  functional  directors  would 
need  to  be  with  the  men  all  the  time,  and  to  be  ready 
to  give  each  man  a  considerable  portion  of  his  time 
and  attention.    Such  an  one  would  have  only  a  few 


174  BUSINESS  PEINCIPLES 

men  in  his  charge;  for  the  performance  of  this  part 
of  a  foreman  ^s  duties  a  nimiber  of  bosses  would  be 
required.  Thus  a  single  workman  would  belong  to  a 
number  of  groups  of  different  size,  in  one  of  which 
perhaps  fifty  other  workmen  were  found,  in  another 
of  which  only  ten  or  a  dozen  formed  the  whole  group. 

As  no  one  has  had  more  experience  in  functional 
management  than  Dr.  Taylor,  and  no  one  else  has 
even  attempted  to  describe  it  fully,  we  are  obliged 
to  fall  back  on  his  account  of  the  system  as  tried  out 
in  the  establishments  he  has  reorganized. 

In  a  shop  of  large  size,  Dr.  Taylor  found  it 
profitable  to  employ  eight  functional  foremen;  four 
having  duties  connected  with  the  active  executive 
work  of  the  shop,  and  four  dealing  with  the  brain 
work,  clerical  duties,  and  laying  out  of  work.  The 
active  foremen,  who  come  in  actual  touch  with  the 
men  in  the  shop,  are  called  *'gang  bosses,"  ** speed 
bosses, '^  ** inspectors,"  and  ** repair  bosses."  Those 
who  are  engaged  in  the  clerical  and  planning  work 
are  called  ** order  of  work  clerks,"  '* instruction  card 
men,"  **time  and  cost  clerk,"  and  **shop  disciplin- 
arian." These  eight  men  are  intended  to  divide 
among  them  the  duties  that  ordinarily  fall  to  the 
lot  of  the  foreman  in  a  military  system.  The  number 
of  functional  directors,  and  the  division  of  work,  are 
not  intended  to  be  absolute  or  dictatorial.  Some- 
times the  functions  of  two  or  more  of  these  men 
can  be  combined;  sometimes  much  may  be  gained  by 
having  a  greater  number  of  divisions  in  the  work  of 
management.  Conditions  will  vary  with  the  size  of 
the  establishment,  and  the  nature  of  the  work  to  be 
done.    Doctor  Taylor's  system  has  been  most  thor- 


FUNCTIONAL  OEGANIZATION  175 

oughly  and  successfuly  tried  out  in  large  establish- 
ments manufacturing  iron  and  steel  products. 

Beginning  with  the  active  shop  foremen,  the  one 
most  familiar  to  those  acquainted  with  the  military 
structure  is  the  so-called  **gang  boss."  The  gang 
boss  is  the  old  job-boss,  stripped  of  all  his  duties 
except  those  of  seeing  that  each  man  is  provided 
with  work  and  full  equipment  for  performing  it  and 
setting  up  the  work  in  machines.  He  must  have 
everything  ready  for  a  new  piece  of  work  as  soon 
as  the  old  is  finished.  All  tools  and  equipment  neces- 
sary for  this  job  must  be  on  hand  so  that  the  work- 
man will  not  waste  time  running  for  new  tools  or 
sharpening  their  implements.  The  time  of  the  ordi- 
nary workman  in  setting  up  his  job  can  usually  be 
very  materially  reduced.  The  gang  boss  should  see 
that  the  workman  sets  up  his  work  in  the  shortest 
possible  time  and  should  always  be  able  and  ready 
to  "jump  in,"  himself,  and  show  how  it  should  be 
done. 

The  speed  boss  takes  up  the  work  where  the  gang 
boss  leaves  off.  His  function  is  not  only  to  see  that 
the  men  work  fast,  but  that  all  the  conditions  neces- 
sary to  the  quickest  and  most  economical  running 
of  the  machine  are  observed.  This  involves  using 
the  right  kind  of  metal  (as  discovered  by  experiment 
on  this  line  of  work),  the  proper  speed  and  driving 
power,  the  proper  cutting  angle,  and  so  on.  The 
men  under  the  functional  system  will  be  provided 
with  slide  rules  or  printed  instruction  cards  from 
the  planning  department,  telling  just  what  tools, 
metals,  speed,  drive,  angle,  etc.  should  be  used  with 
each  kind  of  work.    The  speed  boss  will  know  just 


176  BUSINESS  PEINCIPLES 

how  fast  the  machine  should  nm,  how  quickly  the 
work  should  be  performed;  he  must  see  that  all  the 
instructions  are  accurately  carried  out,  and  that  the 
work  is  done  in  the  quickest  time.  Like  the  gang 
boss,  he  must  be  ready  and  willing  at  any  time  to 
demonstrate  that  the  work  can  be  done  in  the  re- 
quired time,  by  doing  it  himself.  Both  the  functional 
foremen  just  described  will  have  charge  of  only  a 
small  group  of  men,  with  whom  they  will  be  in  con- 
stant contact,  directing  and  helping  them. 

The  qualities  of  honesty  and  fairness  in  judgment 
will  be  required  of  the  * '  inspector. "  As  he  is  respon- 
sible only  for  the  quality  of  the  work,  the  workmen 
and  speed  boss  will  have  to  finish  it  to  suit  him. 
Being  independent  of  the  others,  he  will  be  imder 
no  temptation  to  pass  along  poorly  done  work  in 
order  to  show  a  good  record  for  the  department.  He 
will  not  be  praised  if  the  work  be  quickly  and  cheaply 
done;  he  will  be  censured  if  it  be  not  perfectly  tiu'ned 
out. 

The  repair  boss  might  also  be  called  the  *'neat 
and  orderly''  boss.  His  work  consists  in  seeing  that 
all  machines  are  in  perfect  order,  free  from  rust  and 
dirt  and  broken  parts.  He  must  see  that  belts  are 
at  the  proper  tension,  and  that  all  screws  and  rivets 
are  tight.  In  addition,  he  must  be  a  neat  and  orderly 
person,  who  will  be  offended  by  a  litter  on  the  floor 
or  a  jumbled  disposition  of  tools  or  work  around  the 
machines  or  benches.  Both  the  inspector  and  the 
repair  boss  will  normally  have  charge  of  a  large 
number  of  men,  as  a  few  minutes  per  day  with  each 
man  is  all  that  their  duties  call  for. 

The  "clerical  and  brain"  foreman  in  the  func- 


FUNCTIONAL  ORGANIZATION  177 

tional  system  will  be  members  of  the  planning  de- 
partment; they  represent  the  duties  of  the  old  fore- 
men as  regards  clerical  and  brain  work,  and  come 
into  touch  with  the  workmen  only  in  so  far  as  these 
duties  affect  the  actual  work  of  the  labor  force. 

The  '*order-of-work  or  route  clerk''  has  as  his 
special  task  the  planning  out  of  the  route  each  job 
should  take  from  machine  to  machine,  in  order  that 
all  the  workmen  may  be  provided  with  something 
to  do,  with  no  danger  of  congestion  from  overcrowd- 
ing or  delays  from  lack  of  stock  on  which  to  operate. 
In  connection  with  this  task,  he  must  see  that  all 
the  various  parts  of  a  product  will  be  ready  for  as- 
sembling and  finishing  at  the  same  stated  time.  This 
is  one  of  the  most  difficult  problems  in  a  large  propor- 
tion of  establishments,  as  we  have  seen.  In  the  mili- 
tary structure  it  requires  the  most  active  and  intelli- 
gent cooperation  on  the  part  of  the  heads  of  depart- 
ments to  avoid  serious  losses  on  this  score.  The 
special  order-of-work  clerk  has,  in  the  planning  room, 
all  the  data  necessary  for  an  accurate  and  economical 
arrangement  of  the  work  for  each  set  of  machines,  or 
for  each  group  of  men.  He  therefore  makes  out 
daily  lists,  instructing  the  workmen  and  also  the 
gang  bosses  as  to  the  order  in  which  the  work  should 
be  done,  and  the  amount  that  should  be  finished  by 
each  group  of  men  or  machines.  At  the  end  of  the 
day,  of  course,  the  route  man  has  reports  on  the 
amount  of  work  that  has  been  turned  out;  he  knows 
just  where  each  job  stands,  how  much  is  done,  and 
how  much  remains  to  be  done.  On  this  basis  he  can 
plan  ahead,  and  can  make  recommendations  as  to 
adding  more  men  to  groups  that  are  likely  to  be  over- 


178  BUSINESS  PKINCIPLES 

crowded,  or  as  to  finding  more  work  for  men  that 
seem  destined  to  a  period  of  idleness.  In  most  cases, 
the  work  on  hand  can  be  so  intelligently  routed  that 
no  losses  from  congestion  or  scarcity  need  be  feared. 
The  ** instruction  card  foremen''  are  in  charge  of 
the  means  by  which  the  orders  of  the  planning  de- 
partment are  sent  out  to  the  shop.  Note  that  under 
this  system  nothing  is  left  to  the  guesswork  methods 
either  of  foremen  or  of  workmen.  The  brain  work 
that  ordinarily  has  to  be  done  by  the  workman  is 
all  done  for  him  now,  and  much  more  effectively,  by 
the  planning  department.  The  worker  no  longer 
uses  the  tools  and  implements  that  he  figures  to  be 
** about  right,''  but  the  ones  that  mathematical,  scien- 
tific experiments  have  shown  to  be  most  effective ;  he 
no  longer  runs  his  machine  as  he  likes,  but  at  the 
rate  and  with  the  depth  and  angle  of  cut  that  will 
most  quickly  and  cheaply  perform  the  work  to  be 
done.  The  instruction  cards  may  vary  with  the  work. 
If  it  is  a  well-known  standard  operation  for  which 
a  slide  rule  or  table  of  tools  has  been  already  made 
out,  the  instruction  card  need  not  do  more  than  refer 
to  slide  rule  or  table.  It  should  in  all  cases,  how- 
*  ever,  give  the  name  or  number  of  the  design  to  which 
the  work  belongs,  and  the  cost  order  number  to  which 
the  cost  of  the  work  must  be  charged.  This  last 
item,  remember,  is  to  be  used  both  in  calculating  the 
total  cost  of  the  product  when  finished,  and  to  fur- 
nish part  of  the  record  of  the  work  of  the  man  who 
handles  it.  The  card  should  show  also  the  piece- 
rate,  and  any  premium  to  be  paid  in  case  the  task 
is  finished  within  a  specified  time;  it  should  show 
clearly  how  much  time  should  be  used,  and  should 


FUNCTIONAL  OEGANIZATION  179. 

contain,  below  or  alongside,  a  space  for  putting  down 
the  actual  time  of  operation.  A  similar  card  of  in- 
structions, of  a  more  general  nature,  should  be  made 
out  for  the  executive  gang  bosses.  These  cards  are 
made  out  by  one  or  more  men  in  the  planning  depart- 
ment, according  to  the  character  of  the  work  to  be 
performed.  The  instruction  card  foreman  sends 
them  out  to  the  shop;  and  in  case  of  difficulty  in 
carrying  out  the  directions  he  sees  that  the  right 
man  clears  away  the  obstacles. 

The  **time  and  cost  foreman"  fills  out,  on  the 
instruction  card  above  described,  all  the  information 
relative  to  the  time  which  an  operation  should  take, 
and  the  cost  of  the  work.  When  the  cards  are  re- 
turned to  him,  he  sees  that  they  are  properly  filled 
out,  and  that  the  entries  are  made  in  the  time  records 
for  the  men,  and  in  the  cost  records  for  the  work. 
This  man  also  keeps  the  records  of  the  individual 
workmen,  so  that  not  only  is  the  amount  of  pay 
coming  to  them  entered,  but  the  efficiency  of  each 
man  stands  ready  to  testify  for  or  against  him. 

These  last-mentioned  records  will  be  of  value  to 
the  "shop  disciplinarian. '^  In  case  of  lateness  or 
flnexcused  absence,  insubordination,  neglect  of  work, 
insolence,  or  failure  to  do  their  duty,  this  member  of 
the  planning  department  applies  the  proper  remedy. 
He  should  keep  a  record  of  each  man's  virtues  or 
defects,  and  make  recommendations  based  thereon  as 
to  promotion  or  punishment  or  discharge.  Any  mat- 
ter relating  to  increase  or  decrease  of  pay  should  be 
referred  to  him. 

The  description  here  given,  it  should  be  under- 
stood, represents  the  complete  system  after  it  has 


180  BUSINESS  PEINCIPLES 

been  fully  installed.  No  one  with  experience  in  han- 
dling workmen  or  foremen  will  imagine  for  a  moment 
that  no  difficulties  will  be  met  with  when  an  attempt 
is  made  to  change  from  the  military  to  the  functional 
structure.  Workmen  are  quick  to  resent  any  innova- 
tions. Ways  of  dealing  with  opposition  from  this 
source  will  engage  our  attention  later.  The  greater 
difficulty  with  regard  to  the  introduction  of  func- 
tional management  comes  from  the  men  whose  duties 
are  most  affected  by  the  transition.  It  will  be  noticed 
that  there  is  not  the  same  opportunity  here  as  in  the 
military  system  to  enlist  the  cooperation  and  sup- 
port of  the  foremen  by  the  Committee  or  Advisory 
Board  System,  because  the  foremen,  as  such,  vanish. 
Their  functions  are  largely  split  up  and  put  into  a 
planning  department.  They  could  not  take  kindly 
to  such  a  scheme.  Chief  executives  who  have  had 
years  of  experience  uniformly  assert  that  overcoming 
the  opposition  of  foremen  and  heads  of  departments 
to  innovations,  and  training  them  to  new  duties, 
has  always  been  and  still  remains  the  toughest  prob- 
lem of  reorganization.  Foremen  and  superintendents 
are  jealous  of  methods  other  than  their  own.  They 
cannot  see  that  these  methods  have  not  been  success- 
ful. New  plans,  especially  those  of  a  sweeping  char- 
acter, are  looked  upon  as  an  insult,  and  the  greatest 
tact,  energy  and  force  of  character  are  needed  to 
overcome  their  opposition. 

Those  who  have  had  success  in  introducing  func- 
tional management  lay  stress  on  the  fact  that  it  must 
be  done  gradually,  and  that  months  and  even  years 
may  elapse  before  the  entire  structure  will  be  com- 
pletely and  satisfactorily  erected.     The  first  steps 


FUNCTIONAL  OEGANIZATION  181 

should  be  those  that  least  directly  affect  the  men. 
In  this  class  may  come  the  introduction  of  standards 
in  tools,  equipment,  and  product,  the  standardization 
of  machine  operations  by  study  and  experiment. 
Next,  the  use  of  instruction  cards  and  slide  rules 
should  be  introduced,  with  practical  illustrations  of 
the  advantages  to  be  derived  from  their  use.  Time 
and  cost  cards  will  cause  little  difficulty,  because  in 
most  works  some  sorts  of  forms  have  to  be  filled  out 
anyway. 

While  these  minor  changes  are  being  gradually 
Introduced  among  the  men,  all  the  functional  bosses 
who  have  little  actual  contact  among  the  workmen 
may  be  started  in  their  different  duties.  These  wiU 
naturally  be  the  men  in  the  planning  room,  and  the 
ordinary  foremen  and  job  bosses  will  not  resent  being 
relieved  of  the  clerical  part  of  their  duties.  The 
**time  clerk,"  the  "instruction  card  men,"  the  *' route 
clerk,"  and  the  **shop  disciplinarian"  may  be  intro- 
duced gradually;  and  the  men  and  executive  foremen 
will  become  accustomed  to  having  the  workers  deal 
directly  with  these  men  in  the  special  line  of  each. 

The  first  of  the  functional  foremen  that  will  be 
brought  into  actual  contact  with  the  workmen  should 
be  the  inspector.  A  complete  system  of  inspection 
of  products  should  precede  any  efforts  toward  in- 
creasing the  rate  of  output;  otherwise,  the  quality 
of  the  output  will  suffer.  The  inspector  and  the 
repair  bosses  are  the  first  that  wUl  appear  to  the 
old-line  foremen  as  real  invaders  of  their  territory. 
These  must  now  be  educated  to  take  the  functions 
of  gang  bosses  and  speed  bosses.  Their  opposition 
will  disappear  as  soon  as  they  get  into  line  with  their 


182  BUSINESS  PEINCIPLES 

new  positions.  When  trained  and  tutored  in  the 
possibilities  of  standard  machine  operations  by  care- 
ful, patient  demonstration  of  actual  work,  their  atti- 
tude of  determined  opposition  changes  to  enthu- 
siasm and  support.  They  come  to  see,  too,  that  their 
new  position  demands  an  amount  of  special  infor- 
mation, forethought,  and  definitely  marked  responsi- 
bility which  never  had  been  possible  before. 

The  advantages  which  ensue  from  functional  f ore- 
manship  have  been  indicated  already,  and  the  subject 
needs  little  elaboration.  It  is  clear  enough  that  the 
single  point  of  speed  of  output  can  be  much  more 
efficiently  handled  when  that  matter  is  in  the  hands 
of  a  speed  foreman  who  devotes  his  whole  energies 
to  this  item.  In  military  foremanship,  speed  is  an 
incident,  one  of  many,  in  a  foreman's  duties.  With 
the  functional  structure,  special  and  skilled  provision 
is  made  to  secure  all  that  may  be  gained  from  this 
source. 

Another  advantage  with  functional  management 
comes  from  the  fact  that,  with  all  the  brain  work  of 
the  laborers  specialized  in  the  planning  room,  and 
with  minute  instructions  to  the  men  as  to  all  the 
features  of  their  tasks,  comparatively  difficult  work 
can  be  done  by  men  who  are  not  especially  skilled. 
The  company  can  put  ordinary  laborers,  oftentimes, 
at  machines  which  formerly  required  trained  mechan- 
ics. This  may  seem  hard  on  the  mechanics,  but  is  an 
advantage  to  the  laborers,  who  will  be  paid  more,  of 
course,  than  for  common  day  labor.  Nor  need  the 
mechanics  suffer.  The  increase  in  the  number  of 
foremen  required  under  the  functional  system,  and 
the  ease  with  which  the  few  duties  required  from 


FUNCTIONAL  OEGANIZATION  183 

each  may  be  acquired,  give  the  machinist  an  easily- 
seizable  opportunity  to  rise  to  a  foremanship.  Under 
a  properly  graded  pay  system,  the  skilled  mechanics 
who  do  not  rise  to  higher  positions  may  still  earn 
so  much  more  than  before,  that  the  new  arrangement 
will  give  satisfaction  to  all. 


CHAPTER  Vm. 
THE  OFFICE  AND  THE  DEPARTMENTS. 

No  account  of  the  improvements  that  may  be 
made  in  the  organization  of  the  industrial  workers 
and  their  management — business  organization,  in 
other  words — would  be  complete  without  some  treat- 
ment of  office  methods  and  functions.  To  omit  this, 
would  be  equivalent  to  describing  the  body  without 
the  head;  the  muscles,  bones  and  organs  without  the 
brain  that  moves  and  controls  them.  The  office  repre- 
sents the  brain  and  the  nervous  system  of  the  indus- 
trial organism.  From  it  come  the  orders  to  the 
various  limbs  and  muscles  that  start  in  motion  the 
operations  that  shaU  lead  to  the  desired  result.  To 
it  must  come  all  reports  to  be  stored  away  and  used 
as  a  basis  for  future  action;  just  as  in  the  human 
body,  facts  and  experiences  are  stored  away  in  the 
memory,  and  are  drawn  upon  to  guide  us  as  to  future 
activities.  Another  function  of  the  office  is  to  direct 
the  activities  of  the  different  members  in  the  most 
effective  and  harmonious  manner,  so  that  the  desired 
result  may  be  accomplished  with  the  least  expendi- 
ture of  effort  and  energy. 

Here,  as  in  most  subjects  relating  to  business  or- 
ganization, we  stand  confused  before  the  complexity 
and  the  bewildering  variety  presented  by  the  field 

185 


186  BUSINESS  PKINCIPLES 

of  view.  It  is  impossible  to  say  just  how  the  office 
end  of  any  business  should  be  built  up,  without  a 
most  intimate  knowledge  of  all  the  conditions  of  the 
enterprise,  all  the  factors  that  influence  it,  whether 
external  or  internal.  The  organization  of  the  office 
will  be  greatly  influenced,  for  example,  by  the  type 
of  management  of  the  works.  In  functional  manage- 
ment, the  office  will  consist  of  the  planning  depart- 
ment, some  of  the  members  of  which  will  be  the  func- 
tional foremen  just  described.  In  general,  functional 
organization  will  have  a  strong  tendency  to  enlarge 
the  importance  of  the  office,  to  specialize  in  a  plan- 
ning bureau  all  the  brain  work  and  clerical  work. 

In  a  military  organization,  the  leaning  toward 
specialization  of  the  brain  work  is  not  so  strong. 
The  wholesale  responsibility  and  authority  of  the 
various  heads  of  divisions  naturally  tends  to  deposit 
with  them  considerable  discretion  as  to  ways  and 
means  of  bringing  about  desired  results.  It  leads 
to  a  gain  in  celerity  of  operation,  at  the  expense  of 
economy.  If  a  military  organization  is  to  be  brought 
to  the  top  notch  of  efficiency  by  means  of  the  ad- 
visory board  system  to  which  our  attention  has  been 
directed,  it  will  need  to  be  supported  by  a  strong 
and  efficiently  managed  office.  In  general,  it  may 
be  said  that  there  is  room  for  vast  improvement  in 
this  respect  in  most  establishments.  All  the  gains 
from  the  use  of  system  and  method  must  come  from 
the  office.  There  are,  in  addition,  greater  possibili- 
ties than  have  yet  been  realized  from  the  speciali- 
zation of  brain  work  in  the  ** brain  room.*'  The 
records  and  statistics  of  men  and  methods,  cost  ac- 
counting, reports  of  sales,  purchases,  and  so  on. 


THE  OFFICE  AND  THE  DEPARTMENTS  187 

should  be  more  accurately,  scientifically,  and  sys- 
tematically used  as  a  basis  for  cheapening  the  cost 
of  production,  reforming  defects  of  management  and 
operation,  and  building  up  a  more  efficient  organi- 
zation. 

A  general  type  of  office  that  will  be  effective  in 
all,  or  even  a  majority  of  cases,  cannot  be  described, 
so  wide  is  the  variation  in  conditions,  purposes,  and 
forms  of  different  businesses.  It  may  be  worth  while, 
however,  to  point  out  what  fimctions  an  office  should 
in  general  perform,  and  to  indicate  in  what  ways 
these  functions  may  be  used  to  increase  the  efficiency 
of  a  business. 

One  matter  of  prime  importance  connected  with 
office  work  is  too  often  neglected — ^the  securing  and 
filing  of  reports.  The  vital  part  played  by  accurate 
and  regular  reports  in  any  scheme  of  reorganization, 
in  any  program  for  increasing  the  efficiency  of  an 
establishment,  cannot  be  over-estimated.  Reports 
serve  two  tremendous  purposes.  They  furnish  ma- 
terial on  which  improvements  can  be  started,  based 
on  defects  shown  in  existing  conditions.  In  the  mili- 
tary system,  they  furnish  grist  at  once  for  the  ad- 
visory boards  to  grind.  It  is  not  sufficient  to  have  a 
system  of  cost  accounting,  records  of  sales,  and 
statistics  of  men  and  output — though  these  are  too 
often  neglected.  The  reports  of  progress  made  and 
difficulties  met  with  should  form  the  basis  of  imme- 
diate action  by  the  proper  person  or  persons.  In  the 
functional  organization,  such  reports  will  be  made 
out  in  the  planning  department  by  the  head  of  the 
division  in  charge  of  cost  accounting,  sales,  time  and 
cost  records,  and  so  on,  and  sent  to  the  iaistruction 


188  BUSINESS  PKINCIPLES 

card  men,  to  the  gang  and  speed  bosses,  to  the  order- 
of-work  foreman — to  such  men  as  would  be  able  to 
act  on  suggestions  offered  and  change  defective 
methods  and  processes. 

Reports  serve  also  the  purpose  of  keeping  depart- 
ments and  men  up  to  the  mark.  The  work  of  an  ad- 
visory board  will  soon  dwindle  to  insignificance  if  re- 
ports are  not  made  frequently  and  fully  as  to  reforms 
planned  and  results  accomplished.  The  facts  and 
statistics  of  progress  throughout  the  factory  must 
come  in  concise  form  to  the  chief  executive's  desk. 
When  they  arrive,  something  definite  must  be  done. 
The  idle,  the  lazy,  the  incompetent,  the  unprogres- 
sive,  all  must  feel  the  weight  of  the  hand  of  authority 
in  chastisement  or  censure.  Those  who  have  accom- 
plished what  was  expected  of  them  must  be  rewarded. 
In  fine,  reports  can  be  used  as  a  spur  both  to  start 
reforms  along  the  proper  lines  and  to  keep  men  and 
organization  from  slipping  back  into  the  old  ruts. 

If  results  are  desired,  reports  must  be  scientific- 
ally planned.  There  is  a  great  danger  from  generali- 
zation, from  loosely  constructed  figures,  and  from 
general  remarks  based  on  them.  Yet  it  is  compara- 
tively easy  to  see  just  what  lines  must  be  taken  in 
order  to  bring  concise  reports  that  will  accomplish 
just  what  is  desired, — namely,  profit-making.  The 
goods  must  be  made  at  lower  cost;  when  so  made, 
they  must  be  sold  at  satisfactory  prices  in  sufficient 
quantity.  The  management,  or  the  planning  room, 
must  know  what  should  be  accomplished  in  the  manu- 
facturing division  and  what  has  been  done — in  lower- 
ing cost  of  production,  in  the  development  of  new 
designs  and  methods  to  meet  competitor's  products, 


THE  OFFICE  AND  THE  DEPARTMENTS  189 

in  increasing  efficiency  of  foremen  and  laborers.  The 
cost  of  each  article  made  should  be  accurately  shown, 
and  upon  this  basis  a  compilation  should  be  made 
showing  clearly  just  how  many  sales  must  be  made, 
and  at  what  prices,  in  order  to  cover  total  cost  and 
leave  a  profit  to  the  company. 

The  factory  reports,  so  important  in  checking  up 
progress  in  manufacturing  efficiency,  should  show 
just  what  has  been  put  through  each  day  or  each 
week  in  the  output  of  every  department.  The  loca- 
tion of  all  the  stock  in  the  plant  should  be  clearly 
indicated,  together  with  plans  and  prospects  rela- 
tive to  keeping  the  work  moving  in  proper  sequence 
and  at  a  proper  rate  of  speed.  The  losses  from  un- 
fulfilled contracts  and  slow  deliveries  will  be  ob- 
viated by  a  speedy  consideration  of  these  reports  in 
the  advisory  board  meetings.  The  knowledge  of 
exact  conditions  coupled  with  an  effective  organized 
system  that  will  overcome  impending  delays  and  un- 
even distribution  of  work,  will  accomplish  wonders 
in  the  reduction  of  costs. 

The  sales  reports  must  be  based,  for  a  starting 
point,  on  the  volume  of  business  that  must  be  se- 
cured, and  at  what  prices,  on  each  class  of  goods,  in 
order  to  bring  profits.  The  knowledge  of  what  must 
be  done, — of  just  where  the  firm  stands  in  the  matter 
of  cost,  selling  price,  and  profit, — ^is  an  invaluable 
** first  aid  to  the  (dividend)  injured."  The  presenta- 
tion to  the  sales  manager  of  the  sales  that  must  be 
made,  no  matter  how  the  goods  are  distributed,  may 
be  made  a  spur  to  move  him  to  greater  efforts  to 
come  up  to  the  mark.  It  is  easy  enough,  with  proper 
cost  accounting  and  with  an  analyzed  profit  and  loss 


190  BUSINESS  PRINCIPLES 

statement,  to  consider  what  profit  should  be  secured 
from  each  line  of  goods  in  each  territory.  From  this 
it  is  an  easy  step,  by  taking  into  account  the  factory 
report,  to  compute  exactly  how  many  sales  must  be 
made,  and  at  what  prices.  In  this  computation  sell- 
ing expense  must  be  considered  in  the  cost  account- 
ing, and  an  estimate  made  of  the  expense  under 
which  it  is  possible  to  run  the  sales  department  in 
order  that  gross  profit  may  not  be  swallowed  up  by 
selling  and  advertising  costs.  When  this  has  been 
estimated,  measures  must  be  taken  to  keep  the  selling 
expense  down  to  the  estimate.  Effective  and  eco- 
nomical organization  of  the  selling  force  will  be 
called  into  play  to  keep  the  expense  of  this  end  of 
the  business  as  far  as  possible  below  the  point  which 
an  analysis  shows  to  be  necessary. 

To  this  ^' sales  estimate"  report,  showing  what 
must  be  done,  should  be  added  the  weekly  report  of 
what  has  been  done.  The  one  furnishes  a  standard 
to  live  up  to;  the  other  shows  just  what  approxi- 
mation is  being  made  to  that  standard.  It  may  be 
noted  by  the  way  that  this  idea  of  furnishing  a  stand- 
ard may  be  almost  universally  applied  in  business 
organization,  and  is  almost  universally  productive  of 
results.  As  we  shall  see  when  we  come  to  consider 
the  subject  of  standard  times  for  machining  and  time 
study  for  workmen,  all  operations  should  be  gauged 
and  checked  up  by  what  should  be  done.  So  in  the 
sales  reports  a  standard  is  necessary.  A  comparison 
of  the  actual  sales  results,  with  the  data  showing  the 
results  that  must  be  secured,  will  prove  invaluable. 

It  will  be  understood  that  these  sales  reports  are 
not  to  be  confounded  with  the  reports  necessary  in 


THE  OFFICE  AND  THE  DEPAETMENTS  191 

the  organization  of  the  selling  department.  Each 
salesman  will  have  his  own  record  to  strive  for,  and 
will  send  in  to  the  manager  an  account  of  the  results 
which  he  has  secured,  with  a  comparison  of  the 
results  which  he  should  have  secured. 

The  analyzed  profit  and  loss  statement  should 
show,  first  of  all,  the  labor  cost  of  each  line  of  prod- 
uct. To  this  will  be  added  the  cost  of  delivery,  with 
hauling  and  freight  charges  summarized,  and  the 
proportion  of  expense  that  must  be  charged  up 
against  such  extra  items  as  repairs,  inspection,  mov- 
ing, and  so  on.  Next  will  come  the  selling  expense, 
comparing  the  delivered  sales  with  salaries,  and  the 
office  and  general  expenses  that  can  properly  be 
charged  up  against  each  selling  branch  or  territory. 
Add  to  this  the  part  of  the  general  office  expenses 
that  should  be  charged  up  to  the  selling  end.  This 
subject  is  one  that  properly  belongs  to  accounting 
problems;  hence  it  cannot  be  treated  here  in  too  great 
detail.  It  should  be  noted,  however,  that  the  propor- 
tional expense  of  each  department  should  be  care- 
fully adjusted,  and  charged  correctly  in  the  total 
costs  of  production.  This  will  provide  an  analysis 
that  should  show  at  once  what  are  the  points  of  profit, 
and  where  the  losses  come  from. 

The  importance  of  cost  reports  upon  each  line  of 
product  has  already  been  emphasized.  They  furnish 
the  data  upon  which  the  other  reports  are  based. 
They  can  be  used  to  keep  the  foremen  and  depart- 
ments up  to  the  standard  of  efficiency  that  has  been 
set.  They  furnish  direct  evidence  as  to  what  are  the 
costs  of  production  in  any  department.  If  a  higher 
official  brings  into  an  advisory  board  meeting  or  a 


192  BUSINESS  PEINCIPLES 

general  foremen  ^s  meeting  a  fully  analyzed  cost  sheet 
upon  some  line  of  the  product,  and  begins  to  inquire 
of  the  different  heads  of  departments  why  their  share 
of  the  costs  is  so  large,  the  effect  on  the  foremen 
responsible  will  be  electrical.  The  responsibility  for 
high  cost  and  inefficiency  is  immediately  and  uner- 
ringly placed,  and  no  foreman  is  anxious  to  be  shown 
up  before  his  equals  and  superiors  as  being  below  the 
average  in  efficiency.  Discussions  in  committees, 
begun  by  those  whose  work  has  been  shown  up  as 
unsatisfactory,  will  often  clear  the  way  to  improve- 
ment all  along  the  line.  Cost  statistics,  together  with 
the  aforementioned  factory  reports,  will  enable  a 
manufacturer  to  get  up  monthly  stock  inventories — 
in  other  words,  he  may  seciu'e  a  balance  sheet  of  the 
company's  operation  every  month.  The  value  of 
monthly  inventories  cannot  be  overestimated.  We 
have  already  noted  that  such  a  plan  checks  at  the 
start  any  unprofitable  operations — it  shows  what 
stock  is  piling  up,  which  should  be  cut  down,  what 
lines  are  in  demand,  which  are  profitable,  and  which 
are  unprofitable.  It  prevents  losses  on  capital  ac- 
count for  stock  that  has  stopped  somewhere  in  the 
factory,  and  has  been  forgotten.  It  allows  the  stock 
on  hand  to  be  nicely  adjusted  to  the  probable  de- 
mand, so  that  there  need  be  no  losses  from  over- 
supply  of  one  line  of  goods,  and  undersupply  of 
another.  Other  advantages  of  such  a  system  will 
occur  to  every  wide-awake  merchant  and  business 
man. 

Let  it  be  remembered  always  that  reports  serve 
two  purposes.  They  spur  the  foremen  and  commit- 
teemen to  see  that  output  and  production  reports. 


THE  OFFICE  AND  THE  DEPARTMENTS  193 

cost  reports,  progress  and  new  method  reports,  shall 
represent  a  good  record  for  them  and  their  depart- 
ments, when  they  know  that  such  reports  will  be 
closely  examined  by  the  chief  executive  and  min- 
utely discussed  in  board  meetings.  Besides  acting 
as  a  spur  to  impel  the  concern  faster  along  the  road 
to  success,  they  act  as  sign-boards  pointing  the  way. 

The  functions  that  an  office  should  perform,  and 
the  records  and  statistics  that  should  be  kept,  will 
vary  so  widely  with  the  nature  of  the  business  and 
its  form  of  organization,  that  few  rules  can  be  laid 
down.  Perhaps  if  we  study  the  functions  of  the  plan- 
ning department  in  a  functional  organization  as  de- 
scribed by  Dr.  Taylor,  we  shall  come  as  near  as  may 
be  to  definite  principles.  It  will  give  an  idea  of  the 
divisions  that  need  to  be  made  in  the  office  end  of  a 
large  manufacturing  concern,  and  will  indicate  the 
natm^e  and  value  of  different  functions  that  should 
be  performed  by  men  in  the  organization  who  are  not 
actually  working  with  their  hands. 

1.  First  of  all,  will  come  some  arrangement  by 
which  all  orders  for  products  taken  by  the  company 
will  be  completely  analyzed.  The  importance  of 
such  analysis  will,  of  course,  vary  with  the  nature  of 
the  business ;  but  it  may  safely  be  said  that  very  few 
manufacturers  realize  all  the  benefits  to  be  derived 
from  it.  Ordinarily  such  orders  are  sent  to  the 
drafting  room  and  to  such  department  heads  as  will 
be  concerned,  and  mere  general  instructions  are  given 
to  "go  ahead."  The  result  may  be  that  when  the 
order  is  half  completed  it  will  be  found  that  some 
small  but  important  part  of  it  has  been  forgotten 
by  the  purchasing  agent,  and  everything  will  then  be 


194  BUSINESS  PEINCIPLES 

held  up  until  the  part  can  be  procured.  Or  it  may  be 
that  some  machine  is  out  of  repair,  or  some  part  of 
the  design  has  been  neglected  or  fails  to  fit.  What 
holes  there  are  for  profits  to  leak  out !  Not  long  ago, 
a  big  steel  company  was  obliged  to  hold  up  a  $10,000 
order  for  three  weeks,  because  an  attachment  on  one 
of  the  machines  used  in  making  part  of  the  order  had 
been  overlooked,  and  had  to  be  sent  for  at  the  last 
minute.  The  loss  of  interest  on  the  money  was  in- 
significant as  compared  with  the  losses  from  sud- 
denly holding  up  work  that  was  in  full  swing,  and  the 
consequent  derangement  of  the  ordered  routine  of 
the  different  departments — to  say  nothing  of  the 
consequences  of  tardy  delivery. 

It  is  evident  that  a  complete  analysis  of  orders 
may  save  trouble  and  expense  in  innumerable  ways. 
Such  an  analysis  should  include: 

a.  Designing  and  drafting  required  (if  not  stand- 
ard stock  on  hand). 

b.  Machines  or  parts  to  be  purchased,  with  full 
instructions  to  the  purchasing  department. 

c.  A  list  of  all  the  parts  to  be  made,  with  all  in- 
structions for  making  them.  Each  piece  should  be 
given  a  piece  number,  and  a  symbol  showing  what  it 
belongs  to.  The  last  three  items  should  be  entered 
in  an  order  or  record  book.  Cards  should  be  at- 
tached to  each  piece,  similar  to  those  illustrated,  with 
space  for  recording  time,  labor  cost,  etc. 

d.  A  complete  schedule  should  be  made  out, 
analyzing  the  successive  operations  to  be  performed 
on  each  piece. 

e.  Routing.  The  exact  order  in  which  each 
piece  is  to  travel  through  the  works  must  be  indi- 


THE  OFFICE  AND  THE  DEPARTMENTS  195 

cated.  Together  with  the  analysis  of  operations  to 
be  performed  and  the  time  each  should  take,  the 
progress  of  all  the  parts  can  be  pretty  correctly 
gauged  beforehand,  so  that  all  will  be  ready  for 
assembling  at  approximately  the  same  time. 

2.  Next  comes  standard  time  study  for  machines 
and  men. 

The  analysis  of  the  successive  operations,  and  the 
time  required  for  each,  will  be  furnished  by  men 
having  this  particular  function  in  charge.  There  are 
two  distinct  features  for  this  work;  namely,  the  de- 
termination of  standard  time  for  the  workmen,  in 
order  to  set  a  fair  piece  rate;  and  the  determination 
of  standard  times  and  appliances  for  machines,  to 
discover  under  what  conditions  they  will  turn  out 
the  most  work.  Both  these  operations  will  demand 
our  fuller  attention  later. 

The  man  or  men  in  charge  of  this  work  will  be 
constantly  experimenting,  and  must  keep  in  touch 
with  foremen  or  functional  gang  bosses  who  carry 
out  the  work  in  the  shop.  He  must  keep  continually 
posted  as  to  the  best  methods  and  appliances  to  use, 
and  will  need  advice  and  assistance  from  the  man  in 
charge  of  "standardization"  and  maintenance  of  the 
plant.  For  the  machine  operations,  the  data  gath- 
ered by  experiment  should  be  tabulated,  and  slide 
rules  or  printed  tables  should  be  provided,  one  for 
each  machine  or  class  of  machines  throughout  the 
works.  These  slide  rules,  or  tables,  show  the  best 
way  to  run  each  piece  on  the  machine,  and  give  de- 
tailed rules  as  to  the  best  speed  and  power,  which 
tools  and  appliances  to  use,  and  what  conditions  of 
machining  will  give  the  best  results  on  each  kind  of 


196  BUSINESS  PEINCIPLES 

work,  together  with  the  exact  time  required  for  each 
piece.  The  combination  of  time  study  for  machines 
and  men  will  form  the  basis  for  fixing  a  scientific 
piece  rate  or  other  wage  system. 

3.  The  balance  clerk  comes  next.  This  function- 
ary should  keep  a  record  of  the  movements  of  stock 
from  one  place  to  another  throughout  the  works.  If 
one  department  issues  raw  materials  to  another,  a 
record  of  the  issue  by  the  one  and  the  receipt  by  the 
other  should  be  sent  to  the  balance  clerk.  This  rule 
will  apply  to  all  parts,  materials,  and  partly  finished 
articles  in  the  establishment.  Thus  the  balance  clerk 
can  see  that  the  proper  supplies  of  materials  are  kept 
on  hand,  and  will  know  at  once  when  the  amount  falls 
below  a  prescribed  figure.  This  official  should  work 
in  cooperation  with  the  purchasing  department,  to 
keep  materials  supplied  as  they  are  needed.  He  may 
also  be  made  very  useful  in  the  matter  of  harmoniz- 
ing the  work  of  different  divisions  of  the  establish- 
ment, because  he  can  keep  a  complete  running  bal- 
ance of  the  hours  of  work  ahead  for  each  class  of 
machines  and  men,  by  receiving  from  the  analysis 
and  time-study  officials  lists  of  new  work  entered  and 
from  the  inspectors  and  daily  time  cards  a  list  of  the 
work  finished. 

The  elaboration  necessary  to  keep  up  a  perpetual 
book  inventory  does  not  appeal  to  many  manufac- 
turers, and  the  advantages  to  be  derived  from  the 
duties  of  a  balance  clerk  are  usually  foregone. 

With  accurate  cost  and  stock  data,  it  is  possible 
to  secure  monthly  inventories  of  stock  aproximately 
correct,  without  the  use  of  a  balance  clerk.  He  is 
more  necessary  in  a  functional  than  in  a  military 


THE  OFFICE  AND  THE  DEPARTMENTS         197 

organization,  because  he  can  keep  the  manager  and 
sales  department  posted  as  to  the  number  of  days' 
work  ahead  for  each  division,  so  they  can  forestall  a 
scarcity  or  congestion  of  work.  The  head  of  this  de- 
partment should  be  the  order-of-work  or  route  clerk 
already  described.  In  a  military  structure,  the  main 
advisory  board  will  make  a  special  point  of  securing 
a  steady  flow  of  work  throughout  the  plant. 

4.  Cost  and  expense  exhibits  come  next  for  con- 
sideration. The  nature  and  value  of  cost  reports — 
definite  reports  to  be  used  as  a  basis  for  action  by 
the  proper  officials  or  boards — ^have  already  been  in- 
dicated. The  basis  for  these  reports  will  be  secured 
from  the  accounting  department  in  the  office.  The 
books  of  the  most  progressive  concerns  are  now  com- 
pletely closed  and  balanced  once  a  month.  The  exact 
cost  of  each  article  finished  during  the  previous 
month  should  be  shown,  with  comparisons  of  the  pre- 
vious month's  records.  The  expense  account  should 
also  be  shown  as  a  comparative  statement.  The 
trouble  with  cost  accounts  in  most  of  the  old-fash- 
ioned concerns  is,  that  they  are  mere  memoranda. 
The  cost  account  should  be  a  completely  balanced 
statement;  and  the  entire  expenses  for  office,  admin- 
istration, maintenance  of  plant,  sales,  and  so  on 
should  be  charged  to  the  cost  of  the  product. 

5.  The  pay  department  follows.  In  connection 
with  the  cashier's  or  burser's  office,  there  should  be 
kept  a  record  of  the  time  and  wages  and  piece-work 
data  of  each  man.  The  use  of  time-recording  ma- 
chines is  now  so  general  and  well  understood,  that 
no  description  of  them  will  be  needed;  but  the  impor- 


198  BUSINESS  PEINCIPLES 

tance  of  accurate  records  of  the  arrival  and  departure 
of  men  from  the  works  should  be  emphasized. 

6.  Identification  of  parts  is  a  matter  of  impor- 
tance. Most  manufacturers  have  devised  some  symbol 
system  for  specifjdng  which  finished  article  each  part 
belongs  to,  so  that  the  assembling  of  parts  may  be 
made  without  difficulty.  The  mnemonic  sjTubol 
system  described  by  Captain  Henry  Metcalfe,  in  his 
account  of  the  Frankfort  Arsenal,  is  preferable  to  one 
which  simply  gives  a  number  or  a  letter  to  each  part. 
This  system  identifies  parts  for  assembling,  by  a  se- 
ries of  letters  such  as  to  suggest  the  complete  whole. 
A  complete  system  for  identifying  parts  is  of  tre- 
mendous importance  in  securing  reliable  cost  data 
on  articles  manufactured.  It  is  very  often  desirable 
to  stamp  parts  in  such  a  way  that  if  broken  they  may 
be  recognized  when  they  come  back  to  the  factory. 
This  is  especially  true  if  changes  in  metals  have  been 
made  and  it  is  desirable  to  find  out  which  kind  of 
metal  stands  up  best  under  actual  usage. 

7.  Standardization  is  now  to  be  considered.  The 
duty  of  seeing  to  the  adoption  and  maintenance  of 
standard  tools,  fixtures,  and  appliances,  as  far  as 
possible  throughout  the  plant,  will  belong  to  differ- 
ent men  or  sets  of  men,  according  to  the  system  of 
organization.  Most  large  concerns  find  it  advisable 
to  maintain  a  test  and  experiment  department,  espe- 
cially those  liable  to  meet  competition.  The  closest 
attention  to  standardization  should  be  paid,  whether 
this  is  in  the  hands  of  an  expert  mechanic  or  engi- 
neer, or  is  lodged  in  an  experiment  and  test  depart- 
ment. 

8.  A  progress,  or  experiment,  or  test  depart- 


P  THE  OFFICE  AND  THE  DEPARTMENTS         199 

ment,  is  becoming  of  increasing  importance  in  mod- 
em establishments.  This  division  should  work  in 
close  relation  to  the  purchasing  division.  Some  con- 
cerns even  make  their  progress  or  test  department 
an  entirely  independent  bureau,  which  acts  as  a  sort 
of  umpire  between  the  buying  and  manufacturing 
ends.  Suggested  changes  and  substitutions  are  sent 
to  it  for  trial  and  determination.  If  approved,  they 
are  adopted  into  the  shop  on  its  order. 

The  importance  of  a  test  department  may  be« 
illustrated  by  the  modern  methods  of  meeting  com- 
petition. Suppose  a  company  is  making  a  rather 
complicated  mechanical  device  in  competition  with 
several  other  concerns.  One  of  the  rivals  of  this 
company  has  just  made  a  considerable  cut  in  the  sell- 
ing price  of  its  product.  The  old  method  of  meeting 
competition  was  to  lower  the  labor  cost  by  taking  a 
slice  off  wages ;  to  cut  down  the  cost  of  the  raw  stock 
by  forcing  Smith  and  Jones  to  take  an  additional 
five  per  cent  off  their  bills.  To-day,  as  a  first  step, 
the  progress  or  test  department  sends  out  and  buys 
one  of  the  rival  devices  on  which  the  price  has  been 
lowered.  The  machine  is  then  put  to  a  searching 
critical  test,  to  make  sure  that  the  cost  has  been 
reduced  without  sacrificing  the  quality.  If  it  stands 
the  test,  it  is  then  dissected,  examined,  and  analyzed 
down  to  the  smallest  of  its  component  parts.  Per- 
haps it  is  discovered  that  soft  steel  wiU  do  as  well  in 
places  where  hard  was  used  before.  Perhaps  it  is 
discovered  that  certain  parts  that  before  had  to  be 
made  on  special  order  and  by  hand  have  been  stand- 
ardized and  are  stamped  out  on  machines  in  large 
quantities.    In  any  case,  the  purchasing  agent  is 


200  BUSINESS  PEINCIPLES 

advised  to  cross  certain  products  off  his  list,  the  de- 
signing and  tool  room  departments  are  advised  of 
the  new  method  or  process,  and  the  shop  superin- 
tendent or  planning  room  proceed  to  manufacture 
the  product  on  the  new  basis. 

9.  We  come  now  to  consider  the  maintenance  of 
office  and  plant  organization.  Some  official  should 
have  charge  of  keeping  up  the  organization  of  the 
office  itself.  An  elaborate  time-table  may  be  drawn 
up  daily,  showing  just  when  and  where  each  report 
is  due,  what  instructions  should  be  sent  out  and 
where,  and  all  the  routine  necessary  to  maintain  the 
system.  The  functionary  in  charge  of  this  task 
should  keep  a  large  file  index,  in  which  a  folder  for 
each  day  may  be  kept,  large  enough  to  insert  all  re- 
minders, instruction  cards,  and  reports,  without  fold- 
ing. The  duties  of  this  individual  are  to  find  out 
at  each  time  through  the  day  when  reports  are  due ; 
whether  or  not  they  have  been  received;  and  if  not, 
to  keep  after  the  one  who  is  behind,  until  he  shall 
have  done  his  duty.  Almost  all  the  reports  going 
into  and  out  of  the  office  can  be  arranged  to  pass 
through  this  man. 

In  maintaining  methods  and  the  up-keep  of  the 
establishment,  notices  can  be  put  into  the  file  index — 
sometimes  called  a  ''tickler" — ^in  advance,  to  come 
out  at  proper  intervals  throughout  the  year.  Such 
notices  as  repairs,  inspection,  and  overhauling  of 
machines,  belts,  engines,  boilers,  and  parts  of  the 
plant  that  are  liable  to  wear  out  or  give  trouble,  may 
be  inserted  at  the  proper  intervals.  Break-downs  and 
delays  can  often  be  prevented  by  sending  to  the  man 
in  charge  of  inspection  or  repairs,  notices,  as  they 


THE  OFFICE  AND  THE  DEPARTMENTS         201 

** mature,"  that  such  and  such  examination  or  over- 
hauling needs  to  be  done.  The  purchasing  depart- 
ment can  use  this  file  index  as  a  reminder  of  certain 
purchases  that  ordinarily  have  to  be  made  at  regular 
intervals  throughout  the  year.  In  fact,  each  man  in 
charge  of  a  department  or  division  of  the  works  can 
remind  himself  of  the  various  duties  to  be  performed 
weekly  or  monthly  by  sending  reminders,  written  on 
small  slips  of  paper,  to  be  inserted  in  the  file  and 
returned  to  him  at  the  stated  times. 

The  proper  performance  of  this  function  will 
lower  costs  in  two  directions.  First,  it  provides 
automatically  for  proper  inspection  and  repair  of 
machines  and  equipment  before  any  delay  has  arisen 
from  breakdown  or  wear  and  tear.  Instruction  cards 
for  overhauling  machinery  may  be  made  out  in  ex- 
actly the  same  way  as  for  regular  production  opera- 
tions, and  the  systematization  of  the  work  of  the 
repair  force  in  this  way  will  often  reduce  both  the 
amount  of  work  to  be  done  and  the  cost  of  doing  it  to 
a  fraction  of  the  former  amount.  When  the  repair 
foreman  is  aimlessly  wandering  around  the  works 
looking  for  trouble,  or  worse  yet,  is  waiting  for  some- 
thing to  turn  up,  both  he  and  his  force  will  be  idle 
half  the  time;  the  rest  of  the  time  they  will  be 
crowded  with  work  that  has  piled  up,  while  the  work- 
men at  the  disabled  or  worn-out  machines  will  be 
waiting  for  repairs  to  be  made. 

Second,  the  tickler  system  will  relieve  the  chief 
executive  or  superintendent  of  some  of  the  most 
vexatious  and  time-consuming  of  his  duties.  The 
superintendent  who  has  to  keep  in  mind  the  thousand 
and  one  small  details  that  should  be  performed  by 


202  BUSINESS  PEINCIPLES 

managers  and  foremen  will  have  little  time  to  devote 
attention  as  he  should  to  his  broader  duties. 

10.  There  are  many  smaller  functions  that 
should  be  or  may  be  performed  in  an  office.  These 
will  have  to  be  grouped  together  as  miscellaneous. 
Every  office  will  have  to  keep  a  force  of  ''office-boys," 
who  run  messages,  copy  letters,  etc.  Some  estab- 
lishments have  a  thoroughly  organized  messenger 
system,  in  which  records  of  the  boys  are  kept,  show- 
ing which  are  most  efficient.  Individual  records  of 
all  the  working  force  are  indispensable  as  aids  in  de- 
termining wages,  fitness  for  promotion,  and  as  a  spur 
to  individual  effort. 

Individual  records  are  of  great  use  some- 
times in  maintaining  an  employment  bureau.  To 
the  selection  of  men  who  apply  to  fill  vacancies 
or  new  positions,  the  most  careful  attention  should 
be  given.  This  work  should  be  taken  in  charge  by 
a  competent  man,  who  will  make  careful  inquiries 
into  the  experience,  skill,  and  character  of  applicants 
for  positions.  He  should  also  be  a  close  student  of 
human  nature.  Lists  of  the  men  who  are  qualified 
to  fill  various  positions  in  the  establishment  should 
be  kept,  and  constantly  revised.  Here,  too,  may  be 
kept  the  individual  records  of  the  men,  showing  for 
each  one  his  good  and  bad  points — ^punctuality,  skiU 
at  various  kinds  of  work,  average  earnings,  absence 
without  excuse,  spoiled  work  or  damage  to  machines 
or  tools,  violations  of  rules.  A  suggestive  form  is 
shown  below. 


THE  OFFICE  AND  THE  DEPARTMENTS 


203 


Department- 
Name  


EASTERN  ELECTRIC  CO. 

Becord  for  1909-10 


Address 


Excused   absences 


Unexcused  absences 
Tardy  


Fines 


Damaged  tools 

Earnings 

Best  at  


Poor  work 


Average  of  class 


Discharged? Left?  - 

Quality  of  work:     Good        Fair 


Why? 


Poor 


Sometimes  the  employment  bureau  can  well  be 
run  by  the  shop  disciplinarian  (one  of  the  foremen 
ah'eady  described  with  the  functional  structure),  if 
the  works  are  not  too  large.  The  knowledge  of  char- 
acter and  human  nature  that  must  be  displayed  by 
the  employer  of  labor  will  also  be  needed  by  the  man 
who  is  to  enforce  shop  rules  and  discipline  the  men. 
If  one  man  is  in  charge  of  both  functions,  he  should 
consult  frequently  with  the  foremen  and  bosses,  both 
in  his  role  of  disciplinarian  and  as  an  employer  of 
men. 

Some  establishments  are  frequently  asked  to  rush 
through  certain  orders.  For  various  reasons,  also, 
parts  that  have  spoiled  or  developed  defects  may 
have  to  be  done  over  again,  in  this  way  threatening 
to  arrive  at  the  final  stages  for  assembling  behind  the 
other  parts.    Some  allowance  should  be  made  for 


204  BUSINESS  PEINCIPLES 

this  in  routing  the  work  and  calculating  the  time  of 
going  through  all  the  various  branches  of  production. 
But  it  frequently  does  happen  in  the  best  of  regulated 
factories  that  accidents  unforeseen  hold  up  an  impor- 
tant order  or  progress  on  a  large  contract.  In  such 
cases,  money  may  be  saved  by  dropping  all  other 
work  in  some  department,  and  hurrying  through  a 
rush  order  for  some  part.  This  work,  if  possible, 
should  be  in  the  hands  of  one  man,  who  will  have  no 
other  duty  than  to  take  care  of  special  and  rush 
orders.  In  a  small  establishment,  this  function  may 
be  placed  with  the  order  of  work  or  route  clerk;  in 
any  case,  the  rush  order  man  and  the  route  clerk 
should  work  in  close  cooperation.  The  balance  of 
materials  clerk  should  also  keep  in  touch  with  the 
rush  order  man. 

This  is  not  the  proper  place  in  which  to  discuss 
the  relation  of  the  office  to  various  plans  of  social 
improvement,  insurance,  and  so  on,  among  the  men. 
All  will  depend  on  the  policy  of  the  company  in  this 
respect,  and  will  have  to  be  discussed  under  a  differ- 
ent heading.  It  may  be  noted,  however,  that  even 
those  who  are  most  opposed  to  social  betterment  and 
other  schemes,  usually  advocate  some  kind  of  acci- 
dent or  sickness  insurance.  In  some  companies  the 
scheme  of  disciplining  the  men  takes  the  form  of 
imposing  fines  for  breaking  shop  rules  or  for  damage 
to  machines  or  defective  work.  These  fines  will  not 
be  accepted  as  unbiased  if  the  company  keeps  the 
money  so  collected.  It  must  be  returned  to  the  men 
in  some  form  or  other.  One  of  the  best  ways  is  to 
put  it  into  an  accident  or  sickness  insurance  fund, 
because  thus  it  is  given  to  those  who  need  it  most. 


THE  OFFICE  AND  THE  DEPARTMENTS  205 

It  will  appear  to  many  who  have  followed  our  de- 
scription of  the  functions  that  should  be  performed 
by  the  office  or  the  planning  room  in  their  relation  to 
the  various  departments  of  a  business,  that  such  a 
type  of  organization  must  be  extremely  complicated. 
The  relegation  of  brain  and  clerical  work  to  the  office 
has  produced  many  new  positions  and  functions  in 
the  office  force  that  do  not  even  exist  in  a  successful 
establishment  of  the  older  type.  It  must  be  empha- 
sized again  that  this  is  but  an  example  of  the  appli- 
cation of  the  principle  of  division  of  labor.  The  work 
performed  in  the  office  in  the  most  scientific  organi- 
zations, with  all  its  appearance  of  complication  and 
new-fangled  functions,  must  be  performed  by  the 
workmen  and  foremen  in  the  shop,  under  the  old 
systems  of  management,  with  all  the  appearance  of 
simplicity.  In  the  new  type,  the  work  is  done  by  a 
small  body  of  specially  trained  men,  who  get  the  best 
and  quickest  results  in  the  shortest  time;  in  the  old 
system  it  is  done  by  a  large  and  scattered  body  of 
men,  not  working  together,  and  very  poorly  trained 
and  equipped  for  the  work,  and  each  of  whom,  while 
doing  it,  is  taken  away  from  some  other  job  for  which 
he  is  well  trained. 

The  average  workman  is  well  fitted  to  run  his 
machine  and  turn  out  the  work  economically,  if  the 
proper  tools,  speed,  feed,  and  other  conditions  of 
operation  have  been  clearly  indicated.  If,  however, 
as  is  usually  the  case,  he  is  left  to  do  everything  in 
his  own  way,  to  chose  his  own  tools,  to  begin  and  end 
where  he  feels  like  doing  so,  to  use  the  speed  and 
power  that  first  occurs  to  him,  and  to  select  the  other 
conditions   of  the  machining   operations   at  hap- 


206  BUSINESS  PEINCIPLES 

hazard,  a  vast  amount  of  time  and  money  will  be 
wasted.  It  is  no  uncommon  sight  to  see  a  foreman, 
a  division  superintendent,  and  three  or  four  work- 
men spend  an  hour  around  a  piece  of  machinery, 
trying  to  figure  out  just  how  such  and  such  a  shaft  or 
plate  fits  in. 

There  is  no  question  that  the  cost  of  production 
Is  lowered  by  separating  the  work  of  planning  and 
the  brain  work  from  the  manual  labor.  Yet  the  be- 
lief is  almost  universal  among  employers  that  the 
number  of  clerks  and  of  brain  workers  should  be  as 
small  as  possible  in  proportion  to  the  niunber  of  those 
who  actually  work  with  their  hands.  An  examina- 
tion of  the  most  modern  and  successful  establish- 
ments shows  that  the  trend  is  rather  in  the  opposite 
direction.  There  are  some  kinds  of  business,  of 
course,  in  which  there  is  need  for  very  few  non- 
manual  workers.  The  need  for  superintendents  and 
clerks  in  a  lumber  camp,  for  example,  is  very  small. 

On  the  other  hand,  the  manufacture  and  sale  ot  a 
patent  medicine  may  well  call  for  a  large  force  in 
the  advertising  and  selling  departments,  with  only  a 
small  proportion  of  the  working  force  engaged  in  the 
concoction  and  handling  of  the  product.  But  in  the 
typical  manufacturing  industry,  the  tendency  of  the 
most  successful  and  progressive  concerns  is  to  in- 
crease the  distinctively  clerical  and  brain-working 
force,  and  to  confine  the  manual  workers  to  the  per- 
formance of  the  tasks  for  which  they  are  best  fitted. 
In  the  iron  and  steel  industry,  for  example,  investi- 
gation has  revealed  the  fact  that  in  the  best  estab- 
lishments nowadays  the  proportion  of  brainworkers 
to  manual  laborers  is  one  to  about  six  or  seven.    In 


THE  OFFICE  AND  THE  DEPAETMENTS  207 

the  case  of  similar  works  whose  management  is  less 
effective,  the  proportion  will  run  higher — one  brain 
and  clerical  worker  to  ten  or  eleven  manual  laborers. 
In  the  case  of  a  company  doing  a  manufacturing 
business  with  a  uniform  and  simple  product,  the  pro- 
portion of  producers  to  brain  and  clerical  workers 
would,  of  course,  be  larger.  But  no  manager  or  em- 
ployer need  feel  alarmed  if  he  sees  the  munber  of 
his  office  and  managing  force  increasing  in  propor- 
tion to  the  number  of  actual  hand  laborers,  providing 
the  clerical  and  brainworkers  are  busy  all  of 
their  time,  and  providing  they  are  scientifically  and 
systematically  organized  to  do  efficient  work. 


CHAPTER  IX. 

SCIENTIFIC    STANDARD   TIMES    FOR    MA- 
CHINE  WORK. 

In  the  description  which  has  been  given  of  the 
different  types  of  organization  and  the  functions  of 
different  officers, — superintendents,  foremen  and 
bosses, — frequent  reference  has  been  made  to  the 
importance  of  training  the  executives  and  heads  of 
departments  in  the  most  recent  and  scientific  devel- 
opment of  methods  and  processes.  Among  these 
should  be  counted  the  determination  of  standard 
times  for  machining  operations,  the  minimizing  of 
operation  costs,  the  economizing  of  the  time  and 
energy  of  the  working  force,  and  several  allied  topics. 

It  seems  that  we  are  never  to  have  done  with  this 
matter  of  standards.  The  economies  to  be  derived 
from  the  application  of  this  principle  confront  us  at 
every  turn,  sometimes  in  a  new  form  and  sometimes 
in  a  variation  on  an  old.  It  would  seem  almost  un- 
necessary to  dwell  on  the  necessity  for  economy's 
sake  of  standardizing  not  only  all  the  tools,  imple- 
ments, machines,  and  appliances  used  throughout  the 
shop  and  office,  but  also  the  methods  and  processes 
of  running  machines,  and  all  operations  that  are 
frequently  repeated. 

There  are  a  large  number  of  employers  and  work- 

209 


210  BUSINESS  PRINCIPLES 

men  who  will  claim  that  this  standardization  is  not 
only  unnecessary,  but  positively  liable  to  increase 
the  cost  of  production.  Their  contention  is  that  it 
is  better  to  allow  each  worker  to  use  the  tool  and  fol- 
low the  method  that  he  has  become  accustomed  to; 
that  it  is  hard  to  ** teach  an  old  dog  new  tricks;"  that 
the  workman  can  get  ahead  faster  and  better  by  fol- 
lowing the  methods  and  using  the  tools  and  appli- 
ances that  best  suit  his  individuality. 

There  would  be  force  in  this  argument  if  there 
were  noway  of  finding  out  exactly  which  tools,  imple- 
ments and  processes  will  yield  in  ninety-nine  cases 
out  of  a  himdred  results  better,  cheaper  and  quicker 
than  any  other  combination  of  tools,  implements  and 
methods  of  production.  Those  who  believe  in  allow- 
ing the  worker  to  do  as  he  pleases  about  his  work 
would  be  perfectly  justified  in  their  position  if  all 
roads  led  to  Rome  with  equal  ease  and  directness. 
Those  who  have  not  taken  the  railroad  through  the 
tunnel  will  still  be  content  to  struggle  over  the 
mountain  passes. 

The  manufacturer  who  is  doubtful  about  the 
efficiency  of  the  new  methods  has  the  option  of  com- 
paring the  old  and  the  new  before  taking  any  definite 
or  extensive  steps.  After  having  seen  what  can  be 
done  by  experiment  in  his  own  shop,  or  better  yet,  by 
investigating  in  some  of  the  modern  and  well-man- 
aged establishments  where  machining  operations 
have  been  successfully  standardized,  let  him  allow 
his  own  workmen  to  do  as  they  please  and  hold  them 
responsible  for  equal  results.  The  trouble  is,  the  vast 
majority  of  foremen  and  managers  do  not  even  know 
that  there  is  such  a  thing  as  scientific  standardiza- 


SCIENTIFIC   STANDAED  TIMES  211 

tion.  The  workmen  are  allowed  to  choose  their  own 
tools  and  methods,  but  are  not  held  responsible  for 
results  in  any  sense  unless  indeed  the  quality  of  their 
work  is  so  poor  and  the  quantity  turned  out  so 
small  as  to  warrant  censure  or  discharge  for  total 
inefficiency. 

Complete  standardization  of  tools  is  a  necessary 
preliminary  to  standardizing  machine  times  and  in- 
deed to  all  scientific  methods  of  lowering  costs  of 
production  and  increasing  output.  One  of  the  chief 
causes  for  failure  to  carry  through  new  and  more 
efficient  methods  is  the  failure  to  thoroughly  stand- 
ardize all  tools  and  equipment.  It  is  not  generally 
understood  that  much  better  results  can  be  secured 
even  if  mediocre  standards  be  adopted,  than  if  some 
of  the  implements  are  the  best  of  their  kind  while 
others  are  poor.  The  trouble  with  allowing  of  vari- 
ations in  tools  is  that  it  gives  plenty  of  opportunity 
for  variations  in  quality  and  quantity  of  output.  If 
all  the  workmen  are  exactly  on  the  same  basis,  using 
the  same  tools  in  exactly  the  same  way,  the  bounds 
within  which  excuses  for  poor  or  insufficient  work 
may  be  found  are  correspondingly  limited.  It  is  bet- 
ter to  have  all  appliances  of  second  grade  than  to 
have  them  mainly  first  with  a  few  second  and  a  few 
third  class  tools  thrown  in.  The  tendency  of  the 
workmen  will  almost  invariably  be  to  follow  the  pace 
set  by  the  users  of  the  third  class  appliances. 

It  is  hardly  too  much  to  say  that  in  the  simple 
matter  of  standard  tools,  the  economies  possible  are 
hardly  realized  at  all  by  the  great  majority  of  man- 
agers. It  is  possible  to  illustrate  this  fact  by  a  visit 
to  almost  any  machine  shop  in  this  country.    In  the 


212  BUSINESS  PEINCIPLES 

matter  of  cutting  tools,  hardly  a  shop  can  be  found 
in  which  implements  made  from  a  dozen  different 
qualities  of  steel  are  not  used  side  by  side,  and  fre- 
quently there  is  no  means  of  telling  one  make  from 
another.  The  shape  of  the  cutting  edge  of  the  tool  is 
usually  left  to  the  guess  or  fancy  of  the  individual 
workman.  Yet  a  single  illustration  will  show  how 
wide  a  variation  there  may  be  in  the  efficiency  of 
two  apparently  similar  tools.  The  best  treated  air 
hardening  steel  will  cut  certain  kinds  of  metals  with 
a  given  depth,  cut  and  speed  at  the  rate  of  sixty  feet 
per  minute;  yet  the  same  shaped  tool  made  from  the 
best  carbon  tool  steel  under  the  same  conditions  will 
probably  not  cut  more  than  twelve  feet  per  minute. 
Even  with  the  best  of  workmanship  there  may  be  a 
variation  in  efficiency  of  five  hundred  per  cent 
according  as  one  kind  of  metal  is  used  or  another. 

Apart  from  the  tools,  there  are  undreamt  of  pos- 
sibilities in  the  standardizing  of  machines,  equip- 
ment, power  transmission  and  so  on.  Some  of  these 
things  can  best  be  regulated  by  a  skilled  engineer. 
Take  the  matter  of  power  transmission.  Most  of  the 
machines  in  our  manufacturing  establishments  are 
driven  by  means  of  belts.  It  is  a  practice  almost 
universal  to  allow  the  workman  who  drives  the  ma- 
chine to  care  for  and  tighten  the  belts.  Few  manu- 
facturers know  that  there  may  be  and  usually  is  a 
tremendous  loss  of  power  when  belts  are  not  ad- 
justed to  the  scientifically  correct  tension.  The  most 
skilled  machinist  cannot  properly  regulate  a  belt 
without  the  use  of  graduated  spring  pulleys  which 
will  register  the  tension.  Experiments  extended 
over  a  period  of  years  have  demonstrated  that  belts 


SCIENTIFIC   STANDARD   TIMES  213 

properly  tightened  and  cared  for  by  a  skilled  me- 
chanic according  to  standard  methods  of  scientific 
accuracy,  will  give  on  the  average  double  the  power 
of  those  that  are  cared  for  by  the  usual  hit  or  miss 
methods. 

The  adoption  of  standard  methods  shows  also  a 
tremendous  gain  in  preventing  interruptions  to 
manufacture — so  frequent  under  the  usual  system 
as  to  be  accepted  generally  as  the  unavoidable  decree 
of  fate.  Yet  think  of  the  saving  in  power  alone  that 
wiU  come  from  the  adoption  and  maintenance  of 
standard  methods  in  a  small  detail  like  this!  Nor 
need  it  be  supposed  that  the  employment  of  a  skiUed 
mechanic  to  attend  to  this  detail  involves  any  addi- 
tional expense.  The  work  he  should  do  has  now  to  be 
done  inefficiently  and  wastefully  by  the  man  who  is 
running  the  machine,  and  who  has  to  stop  work  that 
he  can  do  well  to  attend  to  details  about  which  he 
knows  nothing. 

In  the  same  way,  the  old  line  foreman  frittered 
away  his  time  nervously  trying  to  do  things  that  he 
was  poorly  equipped  for,  while  the  work  for  which  he 
was  fitted  was  neglected.  The  losses  that  manufac- 
turers the  country  over  are  incurring  from  failure  to 
standardize  scientifically  a  thousand  and  one  small 
details  would  foot  up  annually  into  millions  of 
dollars. 

The  methods  of  standardizing  all  details  con- 
nected with  manufacturing  processes  cannot  be  en- 
tered into.  We  can  only  point  out  the  principle  and 
outline  its  application  in  a  few  of  the  most  important 
cases.  It  has  already  been  noted  that  the  stand- 
ardization of  machine  operations  involves  a  number 


214  BUSINESS  PEINCIPLES 

of  the  most  vital  factors  affecting  costs  of  production. 
The  rate  of  output  from  a  machine  has  a  most  direct 
bearing  on  profits.  Yet  the  usual  method,  of  leaving 
the  running  of  a  machine  to  the  untrained  experience 
of  a  foreman,  leaves  in  ninety-nine  cases  out  of  a 
hundred,  a  loss  of  from  thirty  to  a  hundred  per  cent 
in  output.  The  average  foreman  does  not  and  cannot 
know  the  best  results  that  can  be  secured  from  ma- 
chining operations,  because  he  has  not  had  the  oppor- 
tunity of  making  experiments  of  a  reaUy  scientific 
character.  Such  experiments  and  tests  will  show 
with  a  high  degree  of  accuracy  just  what  the  shop 
ought  to  be  able  to  accomplish  in  the  way  of  produc- 
tion; and  besides,  the  gain  in  productivity  will  fur- 
nish a  standard  to  which  well-trained  foremen  can  be 
made  to  conform.  It  is  easy  enough  for  a  foreman 
to  report  that  he  is  doing  his  best,  that  the  machines 
and  men  are  yielding  the  maximum  output  that  is 
physically  possible  in  his  department,  if  there  is  no 
way  of  checking  up  his  statements  by  mathematically 
demonstrated  data.  It  is  an  entirely  different  thing, 
however,  if  tried  and  proven  experiments  showing 
what  can  and  what  ought  to  be  done  are  to  be  pre- 
sented to  him  for  comparison  with  his  actual  record. 
In  attempting  to  describe  the  standardization  of 
machine  operations,  however,  it  will  be  necessary  to 
Hmit  the  field  still  further.  There  are  tens  of  thou- 
sands of  machines,  performing  tens  of  thousands  of 
totally  different  operations.  The  task  of  determining 
the  conditions  of  maximum  output  for  boot  and  shoe 
machinery  will  present  totally  different  elements  to 
be  analyzed  from  those  that  must  be  met  in  connec- 
tion with  textile  machinery.    In  aU  cases,  however, 


SCIENTIFIC   STANDARD   TIMES  216 

the  principle  is  the  same.  The  conditions  of  maxi- 
mum efficiency  can  only  be  found  out  by  long,  careful, 
painstaking  experiment,  in  which  each  factor  of  pro- 
duction is  tried  out  with  all  the  variations  on  all  the 
other  factors.  The  conditions  of  maximum  speed 
of  output  for  each  factor  should  then  be  carefully 
tabulated  until  all  the  results  are  in,  when  a  compari- 
son of  the  data  secured  will  give  the  mathematically 
correct  formula  showing  the  conditions  of  greatest 
efficiency  for  that  operation. 

But  while  the  principle  is  the  same  in  all  cases, 
the  difficulties  of  the  problem  cannot  be  clearly  un- 
derstood unless  an  analysis  is  made  of  the  applica- 
tion of  the  principle  to  some  particular  case.  Per- 
haps the  best  illustration  for  this  purpose  is  that  of 
lathe  machines  used  for  cutting  metals.  Experi- 
ments have  been  going  on  along  this  line  for  the  past 
twenty  years;  it  was  in  this  field  that  the  principle 
was  discovered  and  that  the  greatest  results  have 
been  secured. 

The  experiments  of  Dr.  Taylor,  Dr.  Nicholson, 
Mr.  C.  U.  Carpenter  and  others  have  demonstrated 
that  the  standardization  of  machining  operations 
involves  the  solution  of  the  following  important 
problems: 

1.  The  standardization  of  all  tools  that  will  be 
required.  The  importance  of  this  factor  has  already 
been  emphasized. 

2.  The  power  required  to  cut  various  kinds  of 
metals  when  using  tools  of  different  shapes  and  sizes, 
with  different  depths  of  cut  and  coarseness  of  clip. 
For  most  purposes  the  power  can  be  regarded  as  a 
constant,  as  the  most  efficient  working  conditions 


216  BUSINESS  PEINCIPLES 

will  not  require  any  appreciable  increase  of  power, 
if  any.  This  factor  is  of  chief  importance  in  deter- 
mining what  amount  of  power  will  give  the  best  re- 
sults, as  it  would  be  false  economy  to  abandon  an 
otherwise  perfect  set  of  conditions  because  an 
increase  of  power  is  required. 

3.  An  investigation  of  the  laws  governing  the 
cutting  effect  of  tools  of  different  kinds  of  steel  upon 
various  metals.  The  introduction  and  use  of  high 
speed  steel  will  include  an  investigation  of  the 
following  variables : 

a.  The  shape  of  tool  that  will  give  the  greatest 
cutting  results.  Yet  limitation  may  have  to  be  placed 
upon  the  shape  that  would  give  the  greatest  cutting 
efficiency  by  the  consideration  of  the  difficulty  and 
cost  of  forging  and  grinding. 

b.  The  length  of  time  a  tool  will  last  before 
regrinding.  The  cost  of  forging  and  grinding  may  be 
such  as  to  require  a  different  size  and  shape  from 
the  one  that  would  be  in  itself  most  efficient.  As  an 
illustration  of  this.  Dr.  Nicholson's  tests  showed  that 
a  tool  with  an  edge  or  lip  angle  of  60  degrees  would 
remove  soft  steel  very  rapidly.  Such  an  acute  angle, 
however,  is  unfeasible,  because  of  the  danger  of 
breaking.  The  tests  did  establish  the  principle  that 
the  cutting  tool  should  have  the  sharpest  angle  that 
will  not  break  under  the  strain  of  everyday  work. 
For  cutting  softer  metals  the  angle  can  be  more 
acute,  but  with  harder  metals  the  angle  increases. 
For  cast  iron  and  harder  steel  an  angle  of  68  degrees 
is  required;  on  chilled  iron  an  edge  angle  of  86  to  90 
degrees  will  give  the  best  results. 

c.  The  provision  for  proper  treatment  of  the  cut- 


SCIENTIFIC   STANDARD   TIMES  217 

ting  tool  in  making  it  (heating,  forging  and  harden- 
ing) and  in  regrinding  it.  In  all  these  matters  the 
latest  methods  of  treating  tool  steel  should  be 
adopted  and  rigidly  adhered  to.  In  grinding  empha- 
sis should  be  placed  on  the  fact  that  the  workman 
should  not  be  allowed  to  grind  his  own  tools.  Inas- 
much as  tests  show  that  the  shape  to  which  a  tool  is 
ground  will  affect  its  cutting  ability  to  a  very  con- 
siderable extent,  it  is  clearly  a  ruinous  policy  to  aUow 
the  workman  to  grind  his  tools  after  his  own  hit  or 
miss  fashion, — to  say  nothing  of  the  time  wasted  on 
the  part  of  the  workman.  The  results  will  be  even 
worse  than  where  the  workman  is  allowed  to  care  for 
his  own  belt.  All  the  tools  should  be  ground  in  one 
place  and  according  to  standard  shapes  and  angles. 
It  is  important  that  these  angles  once  adopted  should 
be  strictly  adhered  to,  not  alone  because  of  the 
greater  economy  of  cutting,  but  also  because  the 
standard  times  for  machining  will  be  based  upon 
these  shapes.  Any  variation  will  make  it  impossible 
for  the  workmen  to  come  up  to  the  record  which  the 
experiments  show  should  be  made.  If  possible,  all 
tools  should  be  ground  by  automatic  machines,  which 
will  secure  absolute  uniformity  in  the  edge  angle. 

d.  The  quality  of  hardness  of  the  metal  being 
cut.  This  will  chiefly  affect  the  angle  or  edge  of  the 
cutting  tool,  but  should  also  be  considered  with  ref- 

^erence  to  the  cost  of  forging  and  tempering  the 
cutting  tool. 

e.  The  thickness  of  the  shaving.  This  needs  to 
be  considered  with  reference  to  the  rate  of  turning 
and  the  hardness  of  the  metal.  It  may  be  a  question 
whether  better  results  will  be  secured  by  a  cut  of  a 


218  BUSINESS  PEINCIPLES 

certain  depth  at  a  certain  speed  or  by  a  cut  half  as 
deep  at  double  the  speed,  or  some  other  variation  of 
speed  and  cut. 

f.  The  speed  of  turning.  Besides  depth  of  cut, 
the  question  of  power  and  gear  should  be  considered 
in  this  connection. 

g.  The  determination  of  the  best  working  con- 
ditions, such  as  the  effect  on  the  cutting  speed  of 
using  water  or  soda  or  other  cooling  agent  on  the 
tool. 

4.  The  most  difficult  task  of  all  relates  to  meth- 
ods of  collecting  the  data  secured  upon  a  systematic 
plan,  and  insuring  their  practical  and  regular  use  in 
actual  practice.  The  data  must  not  only  be  collected; 
it  must  be  put  in  such  a  form  as  to  enable  any  me- 
chanic to  discover  quickly  and  correctly  for  any 
machine  in  the  shop  what  tools,  what  speed  and 
power,  what  thickness  of  clip,  what  conditions  of 
operation,  will  in  each  particular  case  enable  the 
work  to  be  done  in  the  shortest  time.  Together  with 
instruction  of  the  workmen  must  go  instruction  of 
the  foremen,  not  only  as  to  the  results  to  be  expected 
but  as  to  how  to  secure  them.  Lastly,  provision  must 
be  made  that  everyday  production  follows  closely  the 
standard  set  by  the  experiments  and  tests. 

As  far  as  the  workmen  are  concerned,  the  most 
difficult  part  of  the  problem  is  solved  as  soon  as  they 
are  disabused  of  the  idea  that  they  can  do  things  in 
their  own  way.  It  is  not  difficult  to  draw  up  tables, 
make  slide  rules,  and  formulate  instruction  cards 
which  will  show  what  should  be  done  and  how.  The 
difficulty  is  to  convince  them  that  the  new  plans  do 
not  conceal  an  attempt  to  make  them  do  more  work 


SCIENTIFIC   STANDARD   TIMES  219 

at  the  same  rate  of  pay,  or  at  least  to  rob  them  of 
their  individuality  by  imposing  strict  rules  govern- 
ing what  seem  to  them  the  petty  and  insignificant 
details  of  their  work.  The  problem  here  is  a  far  more 
serious  one  than  appears  at  first  sight;  its  solution 
requires  the  greatest  tact,  ingenuity,  and  a  consider- 
able insight  into  the  psychology  of  the  workingman. 
The  fact  that  under  the  new  plans  they  will  work 
harder,  and  will  be  required  to  turn  out  a  greater 
number  of  pieces,  cannot  be  gainsaid.  It  is  but  just, 
then,  that  those  conforming  to  the  plans  should  be 
given  an  extra  reward. 

But  here  comes  the  difficulty.  Workmen  have 
been  fooled  so  often  by  promises  of  extra  pay  for 
extra  work,  that  they  are  extremely  suspicious  of 
any  plan  put  before  them  by  their  employers  which 
will  allow  him  to  find  out  what  they  can  do  if  they 
really  exert  themselves,  and  thus  give  him  an  excuse 
for  insisting  that  the  pace  be  kept  up  on  the  former 
pay  basis.  This  phase  of  the  problem  will  call  for 
special  consideration  in  succeeding  pages.  It  is 
enough  to  say  now  that  the  workmen  will  deserve 
and  must  receive  higher  wages  for  additional  efforts; 
that  they  must  be  made  to  feel  that  the  new  plans 
will  be  to  their  advantage  as  well  as  their  employers'; 
and  that  an  absolutely  ironclad  insurance  must  be 
given  to  the  workmen  that  the  additional  pay  prom- 
ised them  will  be  as  fixed  as  the  laws  of  the  Medes 
and  Persians,  which  change  not.  Correct  principles 
as  applied  to  the  work  and  the  pay  of  the  labor  force 
will  bring  about  savings  and  economies  even  more 
startling  than  those  brought  about  by  scientific 
standards  applied  to  their  working  operations. 


230  BUSINESS  PEINCIPLES 

Leaving  for  later  consideration  the  question  of 
securing  the  hearty  support  of  the  new  plans  on  the 
part  of  the  workmen,  the  actual  means  by  which  the 
workmen  can  adopt  and  maintain  the  conditions  of 
most  efficient  production  deserves  some  notice.  It  is 
only  within  recent  years  that  those  who  have  carried 
on  experiments  in  metal  lathe  machine  operations 
have  developed  a  slide  rule  by  means  of  which  the 
entire  problem  can  be  accurately  and  quickly  solved 
by  any  mechanic.  Mr.  H.  L.  Gantt  and  Mr.  Carl 
G.  L.  Barth,  both  members  of  the  American  So- 
ciety of  Mechanical  Engineers,  Philadelphia,  Pa., 
have  been  for  some  time  engaged  in  the  work  of  in- 
troducing these  slide  rules  and  the  methods  of 
machining  operations  based  on  them  into  machine 
shops  throughout  the  country. 

The  slide  rule  should  be  accompanied  in  all  cases 
by  the  instruction  card,  before  mentioned.  In  the 
absence  of  the  slide  rule  the  necessary  information 
will  have  to  be  put  on  the  instruction  card,  or  a  table 
can  be  appended  which  in  some  cases  may  be  made  to 
take  the  place  of  the  slide  rule. 

It  must  not  be  imagined  that  the  instruction  card 
can  be  made  out  on  any  fixed  form  to  cover  all  cases. 
It  can  be  put  to  wide  and  varied  use,  and  should  vary 
in  size  and  form  according  to  the  nature  and  amount 
of  the  information  it  is  intended  to  convey.  In  some 
cases  it  may  consist  of  nothing  but  a  line  or  two  on  a 
small  slip  of  paper,  especially  where  the  operations 
to  be  performed  are  few  and  well-known,  and  the 
standardization  of  which  has  become  a  matter  of 
habit  to  the  workman.  In  other  cases  it  may  consist 
of  several  pages  of  typewritten  or  printed  matter. 


SCIENTIFIC   STANDAED  TIMES  221 


Workman's  name 


Machine  Piece 

Cost  order  number  

Tools  needed: 


Start     

Depth   

Angle    

Speed  of  machine 
Bemarks  


Instructions  from 
Piece  rate 
Premium 
Time  should  take 


Time  actually  taken 
Cost  of  operation  — 
Bemarks  


Sample  of  instruction  card   for  workman,  to   accompany  each  piece 
of  work. 

Some  kinds  of  work  may  require  an  instruction  card 
for  each  new  operation  or  set  of  operations;  for 
others  varnished  and  mounted  sets  of  instructions 


222  BUSINESS  PRINCIPLES 

may  be  kept  on  hand  and  issued  under  a  check  sys- 
tem every  time  the  operation  has  to  be  repeated. 

An  illustration  extremely  valuable  as  showing  the 
economies  that  can  be  effected  by  the  use  of  standard 
processes  and  appliances,  and  the  methods  of  making 
out  an  instruction  card  embodying  the  principles 
involved,  is  described  by  Dr.  Taylor  in  his  paper  on 
Shop  Management.  The  problem  before  him  was  to 
draw  up  an  instruction  card  for  cleaning  a  set  of 
boilers  at  regular  intervals,  to  be  sure  that  the  work 
was  thoroughly  done,  to  insure  that  the  boilers  should 
be  out  of  operation  as  short  a  time  as  possible  and  to 
lower  the  cost  of  the  work  by  having  it  done  on  piece 
rate  wages  with  all  possible  economies  of  method. 
He  performed  all  the  work  of  chipping,  cleaning  and 
overhauling  the  boilers,  and  at  the  same  time  made  a 
careful  study  of  the  time  required  to  carry  on  each 
of  the  elements  of  the  work.  The  time  study  showed 
that  a  great  part  of  the  workman's  time  was  wasted 
because  of  the  cramped  and  uncomfortable  position 
of  the  workman.  To  remedy  this  condition,  pads 
were  made  to  fasten  to  the  elbows,  knees  and  hips. 
He  found  that  the  tools  used  were  old-fashioned  and 
inadequate;  special  tools  and  appliances  were  made 
best  fitted  to  carry  on  the  various  details  of  the  work. 
On  the  instruction  card  was  entered  a  list  of  all  the 
tools  and  equipment,  including  the  pads.  Each  tool 
was  stamped  with  its  own  number  for  identification, 
and  all  were  sent  out  from  the  tool  room  in  a  single 
box  in  order  to  keep  them  together  and  save  time. 
All  the  details  of  the  operation  were  carefully  set 
down  on  the  card  in  the  order  in  which  the  various 
parts  were  to  be  performed  and  the  tools  to  be  used 


SCIENTIFIC   STANDARD  TIMES  223 

for  each.  A  separate  piece-work  price  was  set  on 
each  part  of  the  job,  and  inspection  provided  for 
each  section  of  the  work  as  soon  as  it  was  finished. 
The  instruction  card  covering  the  whole  operation 
covered  several  typewritten  pages. 

Yet  the  trouble  taken  was  amply  justified  by  the 
results.  An  immense  saving  was  effected  in  that  the 
work  was  completed  in  a  fraction  of  the  time  pre- 
viously required,  so  that  the  boilers  were  out  of  use 
only  for  a  very  short  period.  The  cost  of  the  opera- 
tion was  reduced  to  eleven  dollars,  whereas  before 
the  work  on  payment  by  the  day  without  an  instruc- 
tion card  has  been  sixty-two  dollars.  The  workman, 
too,  was  paid  at  a  much  higher  rate. 

The  next  step  in  solving  the  problem  of  standard 
times  for  machining  is  seciu'ing  the  support  of  the 
foremen  to  the  new  methods  and  instructing  them  in 
the  art  of  securing  the  best  and  most  scientific  re- 
sults. As  has  been  observed  already,  few  foremen 
have  had  opportunities  for  making  tests  of  a  reaUy 
scientific  character.  The  average  superintendent 
and  foreman  as  a  rule  will  resent  any  changes  that 
seem  to  imply  that  his  methods  are  not  perfect,  or 
the  best  that  can  be  employed  under  the  circum- 
stances. As  far  as  the  old  style  foremen  can  see, 
their  systems  of  operation  have  been  successful,  and 
nothing  but  a  spirit  of  bullet-headed  interference  in 
their  work  could  impel  an  employer  or  chief  execu- 
tive to  introduce  innovations.  The  greatest  of  tact 
and  skill  will  be  necessary  in  making  foremen  see 
that  the  new  methods  are  not  intended  as  a  criticism 
of  their  work,  but  should  be  regarded  as  an  improve- 
ment  which   is   backed   by   scientific   experiment 


224  BUSINESS  PEINCIPLES 

and  which  is  worthy  of  their  hearty  support  and 
admiration. 

Careful,  painstaking,  and  personal  explanation  of 
just  what  it  is  hoped  to  accomplish  **for  the  good  of 
the  company"  will  in  many  cases  eliminate  the  sus- 
picion and  distrust  of  the  foremen.  Together  with 
this  should  go  a  long  and  carefully  worked  out  series 
of  object  lessons.  After  the  experiments  have  been 
made  and  the  conditions  of  highest  efficiency  deter- 
mined, it  is  a  mistake  to  begin  introducing  the  new 
methods  at  once.  The  foremen  must  be  taken  into 
the  test  room  one  by  one,  and  shown  what  can  be 
accomplished  by  following  strictly  the  outline  of  the 
instruction  cards.  Not  in  a  spirit  of  criticism;  not  in 
a  spirit  of  **I  told  you  so;"  not  in  a  manner  that 
would  suggest  any  intention  of  interfering  with  the 
foremen's  work; — not  so  can  anything  be  accom- 
plished. Rather  the}^  should  be  given  the  idea  that 
the  management  has  discovered  some  new  mechani- 
cal curiosity  which  they  will  be  interested  to  inspect. 

Let  them  sit  down  at  the  machine  and  do  the  work 
required  in  the  old  way,  carefully  timing  the  opera- 
tion; then  have  an  expert  trained  in  the  new  methods 
sit  down  and  do  the  same  work,  and  let  the  foremen 
consider  in  their  own  minds  what  the  difference  in 
time  means  to  the  company  as  a  whole  and  to  the 
output  of  their  departments  in  particular.  Explain 
the  experiments  by  which  such  and  such  an  angle 
for  a  cutting  tool,  and  such  and  such  speeds  and  feeds, 
have  been  discovered  to  be  the  best  and  most  effi- 
cient. Show  by  tests  before  their  eyes  that  a  tool 
ground  at  haphazard  by  a  workman  will  turn  out  the 
work  at  a  much  slower  rate  than  the  best  tool  scien- 


EXPENSE  OF  WASTED  TIME  241 

employer's  money  was  simply  tremendous,  yet  the 
foreman,  standing  by  with  a  smile  on  his  face,  com- 
placently remarked :    *  *  Pretty  busy  lot,  ehV* 

They  were  busy,  but  not  productive;  they  were 
industrious,  but  their  activities  were  not  earning  ade- 
quate profits  for  the  company,  nor,  as  a  glance  at  the 
pay-roll  showed,  more  than  meagre  wages  for  them- 
selves. Consider  in  how  many  ways  production  in 
this  department  could  have  been  speeded  up  without 
any  additional  labor  on  the  part  of  the  men.  In  the 
first  place,  the  supply-room  could  have  collected  sup- 
plies of  glue,  mica  and  tape  and  passed  them  out  in 
standard  lots,  so  that  only  one  trip  would  be  neces- 
sary instead  of  three.  The  lots  could  have  been  made 
large  enough  to  last  a  whole  day  or  at  least  half  a 
day,  so  that  only  one  or  at  most  two  trips  a  day  for 
each  man  would  have  been  necessary.  As  the  depart- 
ment was  then  run,  each  man  decided  for  himself  just 
how  much  of  each  accessory  he  wanted  to  call  for, 
and  those  that  were  fond  of  knocking  off  work  to  run 
about  the  place  took  care  to  secure  only  a  handful 
of  mica  or  a  few  rolls  of  tape  at  a  time,  so  that  it 
would  not  last  long.  Those  that  tried  to  economize 
their  time  by  getting  two  or  three  things  at  once  and 
in  large  amounts,  were  frowned  upon  by  the  others, 
as  they  were  suspected  of  a  desire  to  speed  up  the 
work  and  set  a  fast  pace  for  the  rest.  And  the  men 
were  perfectly  right  in  this  contention.  The  work 
was  paid  for  at  piece  rates,  and  according  to  the 
cheerful  statement  of  the  foreman,  the  rate  had  been 
cut  once  or  twice  already;  the  men  fully  understood 
that  any  effort  on  their  part  to  increase  the  rate  of 
output  would  act  on  the  foreman  as  a  red  rag  does 


242  BUSINESS  PRINCIPLES 

on  a  bull,  and  down  would  go  their  pay.  With  such 
a  system  in  vogue,  both  the  men  and  the  company 
were  like  two  children  on  a  see-saw;  if  one  went  up 
the  other  must  go  down.  The  only  thing  the  work- 
men could  do  was  to  give  an  appearance  of  great  in- 
dustry, and  make  the  foreman  think  they  were 
straining  every  nerve  to  get  the  work  out  fast.  And 
in  this  they  succeeded,  though  none  of  the  parties 
concerned  knew  at  what  money  cost,  to  the  men  in 
wages  and  to  the  company  in  profits,  this  success  was 
achieved. 

There  was,  in  the  department  described,  no  fixed 
place  for  each  workman  to  put  the  accessories  of 
his  work.  The  coils  to  be  insulated  were,  of  course, 
set  up  in  frames  or  standards;  but  the  mica  and  tape 
were  piled  indiscriminately  on  the  floor  or  on 
benches,  wherever  there  happened  to  be  a  clear  space, 
sometimes  two  piles  would  get  mixed,  and  then  the 
workmen  would  stop  and  separate  them — ^result,  time 
wasted.  Nearly  every  man  lost  considerable  time 
looking  around  for  his  glue-pot  or  his  tape,  for  there 
being  no  fixed  place  for  anything,  articles  could  only 
be  found  where  they  had  last  been  thrown.  It  was 
the  same  way  with  cutters,  knives,  and  other  tools. 

No  two  of  the  men  did  the  work  in  exactly  the 
same  way.  Some  laid  the  tape  on  thick,  others  over- 
lapped it  only  narrowly.  Some  cut  the  mica  strips 
narrow,  others  cut  them  wide.  Some  splashed  the 
glue  over  everything,  others  were  sparing  in  its  use. 
The  foreman  evidently  preferred  to  let  each  man 
pursue  his  own  methods  and  made  no  protest  unless 
the  coils  actually  came  back  from  the  tests  inade- 
quately insulated.   Here  was  a  loss  from  two  sources. 


EXPENSE  OF  WASTED  TIME  243 

In  the  first  place,  as  there  was  no  standard  time  or 
conditions  of  performing  the  operation,  a  great  deal 
of  time  was  wasted  from  the  hit-or-miss  methods 
of  work.  Second,  no  accomit  whatever  was  taken  of 
the  amount  of  materials  used  by  each  man  in  per- 
forming his  task.  The  men  were  allowed  to  use  as 
much  or  as  little  as  they  chose,  a  system  resulting 
in  great  waste  of  supplies. 

To  remedy  these  conditions  there  was  needed  first 
of  all  a  system  of  paying  for  the  work  that  would 
make  if  of  vital  interest  for  each  man  to  increase  his 
output  to  its  maximum.  The  standard  minimum 
time  for  the  operations  should  have  been  determined, 
and  a  piece  rate  set  on  that  basis,  with  an  absolute 
guarantee  that  the  rate  would  not  be  cut  under  any 
circumstances.  It  might  even  have  been  well  to  set 
a  task  with  a  differential  rate  of  pay — ^this  subject 
will  come  up  for  fuller  consideration  later.  The 
determination  of  standard  time  for  the  operation 
would  have  caused  savings  in  several  directions.  It 
would  have  given  the  workmen  the  methods  by  which 
the  operations  could  be  put  through  in  the  shortest 
possible  time.  The  setting  up  and  taking  down  of 
the  work  would  have  been  very  materially  facilitated 
and  hastened  by  standard  methods.  The  machining 
itself,  if  we  may  so  call  it,  would  have  been  put 
through  not  only  in  a  shorter  time  but  in  a  much 
better  way.  Positive  and  unmistakable  instructions 
as  to  the  use  of  the  glue,  the  width  and  overlap  of  the 
mica,  and  the  winding  of  the  tape,  would  have  ef- 
fected a  saving  in  supplies  and  at  the  same  time 
secured  the  most  effective  use  of  materials.    By  this 


244  BUSINESS  PRINCIPLES 

plan  the  losses  from  improper  insulation  would  have 
been  practically  eliminated. 

Next,  the  time  lost  by  the  workmen  in  running 
to  the  supply-room  for  materials  could  have  been 
not  only  cut  down  by  the  plan  indicated  above,  but 
probably  could  have  been  eliminated  altogether.  An 
adequate  supply-room  force,  acting  in  cooperation 
with  the  order-of-work  clerk  and  the  instruction 
card  men,  could  have  found  out  beforehand  just  what 
and  how  much  material  would  be  needed  by  each 
workman  for  the  work  planned  for  the  day.  These 
could  be  collected,  put  in  convenient  boxes,  and  taken 
to  the  workman  before  he  was  ready  for  them. 

This  plan  would  put  into  very  effective  operation 
the  saving  in  the  use  of  materials.  The  boxes  should 
be  of  standard  size,  and  made  especially  for  con- 
venience in  holding  the  materials  to  be  required.  If 
this  plan  were  carried  out  in  all  departments  the 
total  saving  in  time  and  materials  alone  would  be 
tremendous.  These  boxes  should  contain  pockets  in 
the  side  in  which  the  necessary  instruction  and 
record  cards  might  be  placed. 

The  use  of  boxes  as  described  would  prevent  the 
indiscriminate  scattering  of  materials  on  the  floor 
and  benches,  with  the  disorder  and  loss  of  time  en- 
tailed. The  removal  of  stock  from  the  box  by  the 
workman  would  be  facilitated  and  hastened  by  hav- 
ing everything  in  a  definite  place.  This  advantage 
could  be  further  realized  by  careful  judgment  in 
selecting  the  place  where  the  box  should  stand.  A 
low  table  or  bench  placed  within  easy  reach  of  the 
workman's  hand  would  immediately  standardize  the 
place  where  the  stock  should  be  placed  and  could  be 


EXPENSE  OF  WASTED  TIME  245 

made  to  hold  the  coils  to  be  insulated,  the  box  of 
supplies,  and  the  finished  stock.  The  truckers  who 
brought  the  coils  in  from  the  winding  department 
could  be  required  to  unload  the  coils  onto  these 
benches,  thus  making  it  unnecessary  for  the  work- 
man to  leave  his  machine  to  get  pieces  off  the  trucks. 
The  boxes  on  low  tables  would  save  the  work  and 
time  of  the  operator  in  stooping  over  to  pick  the 
supplies  off  the  floor  or  from  inconvenient  places  on 
the  bench.  The  fact  that  these  boxes  would  always 
be  in  the  same  position,  and  that  the  workman  would 
become  accustomed  to  finding  his  materials  always 
in  the  same  spot,  would  add  appreciably  to  the  speed 
of  handling. 

Few  manufacturers  realize  what  costly  methods 
are  in  operation  in  their  own  shops.  They  see  their 
men  busy,  or  apparently  so,  and  if  the  profit  and  loss 
sheet  shows  sadly  inadequate  results,  they  look 
everywhere  but  in  the  proper  place  for  the  cause. 
And  it  often  takes  a  most  keenly  analytical  eye  to 
tell  whether  an  intelligent  workman  is  at  least  four- 
fifths  as  busy  as  he  looks  or  only  two-fifths.  The 
workman  may  not  be  conscious  of  the  fact  that  he 
is  wasting  his  time ;  then  again  he  may,  but  it  makes 
no  difference  in  the  final  analysis.  No  matter  how 
industrious  the  workmen  may  seem,  in  ninety-nine 
cases  out  of  a  hundred  a  careful  analysis  will  show 
that  time  is  being  wasted,  consciously  or  uncon- 
sciously. 

The  starting  point  for  such  an  analysis  will  be 
made  in  most  cases  most  profitably  by  considering 
how  much  of  his  time  the  workman  spends  actually 
running  his  machine.     This  is  the  central  point. 


246  BUSINESS  PEINCIPLES 

Every  moment  counts  for  profit  while  the  machine 
is  running;  it  comits  for  more  profit  if  the  machine 
is  running  under  the  best  and  most  efficient  condi- 
tions. Conversely,  every  moment  counts  for  loss  if 
the  machine  is  shut  down,  or  the  production  opera- 
tions are  suspended  because  the  workman  is  attend- 
ing to  matters  outside  of  his  special  work. 

The  ways  and  means  employed  by  workmen  for 
wasting  their  time  are  not  copyrighted,  hence  there 
will  have  to  be  a  new  solution  of  the  problem  in  each 
particular  case.  Oftentimes  the  workman  himself 
will  honestly  think  he  is  doing  his  best,  and  that 
makes  it  doubly  difficult  for  an  employer,  probably 
not  any  too  familiar  with  the  details  of  the  machining 
operations  in  his  own  shops,  to  pick  out  the  flaws  in 
the  weaving.  They  can  often  be  determined  only  by 
careful  and  exhaustive  experiment  by  an  expert  who 
knows  just  what  the  problem  is.  And  to  get  the 
highest  results  the  test  method  will  always  have  to 
be  adopted.  And  yet  hundreds  of  instances  are 
recorded  of  valuable  steps  toward  improvement 
taken  from  simple  observation. 

Not  long  ago  a  certain  manufacturer  was  walking 
through  his  shop.  That  day  he  had  received  from  his 
accountant  a  statement  of  the  profit  and  loss  of  the 
establishment  for  the  year  past,  and  the  two  items 
had  balanced  so  evenly  that  there  was  no  possibility 
of  declaring  an  honest  dividend  for  the  year.  He  had 
done  everything  in  his  power  during  the  year  to 
conduct  the  business  in  the  most  progressive  and  eco- 
nomical manner.  The  sales  had  been  large  and  the 
market  had  been  held  fairly  well.  But  there  had 
been  apparently  a  continual  absorption  of  working 


EXPENSE  OF  WASTED  TIME  247 

capital  into  machinery  and  stock,  deliveries  had  been 
delayed  in  such  a  way  as  to  injure  seriously  the 
organization  of  his  selling  force,  while  large  and  un- 
expected costs  that  he  could  in  no  wise  accoimt  for 
had  put  his  expenses  up  to  a  no-dividend  amount. 
This  man  knew  little  or  nothing  of  the  machining 
operations  in  his  shop,  believing  that  aU  such  matters 
could  safely  be  left  to  the  foremen.  As  he  walked 
along,  everything  seemed  to  be  running  efficiently 
and  smoothly.  How  busy  the  workmen  were!  One 
and  all  seemed  to  be  on  the  qui  vive.  Here  are  the 
tool-grinders,  with  a  line  of  men,  each  impatiently 
waiting  his  turn.  Suddenly  the  thought  struck  him 
that,  however  impatient  these  men  might  be  to  get 
their  tools  ground,  for  the  time  that  they  stood  there 
they  were  producing  nothing.  Each  man  repre- 
sented a  machine  standing  idle,  stock  waiting  to  be 
put  through  the  factory,  tools  and  equipment  and 
plant  itself  earning  no  dividends,  wages  paid  for  idle 
hours.  The  manufacturer  placed  himself  in  an  ob- 
scure comer  where  he  could  watch  the  grinding 
tools,  took  out  his  watch,  and  made  notes  on  a  slip 
of  paper  relative  to  the  number  of  men  in  the  waiting 
line  and  the  time  consumed  by  each  in  waiting  his 
turn  and  grinding  his  tools.  At  the  end  of  the  day 
a  simple  calculation  told  him  that  on  the  average 
every  man  in  his  establishment  used  up  six  per  cent 
of  his  time  grinding  tools.  Thereupon  he  introduced 
a  change  in  the  handling  of  this  work.  He  employed 
a  few  men  to  give  their  exclusive  time  to  the  grind- 
ing of  tools  and  arranged  to  have  well  ground  tools 
delivered  to  each  workman  with  each  job.  He  intro- 
duced no  other  of  the  score  of  economies  that  an  ex- 


248  BUSINESS  PRINCIPLES 

pert  would  have  found  possible  in  his  shop  methods, 
because  he  knew  practically  nothing  of  the  nature 
of  the  problem  before  him,  of  what  could  be  done 
with  standard  conditions  of  machining,  with  stand- 
ard tools  and  economical  handling  of  stock.  Yet  the 
saving  of  the  workmen's  time  in  grinding  tools  alone 
enabled  him,  six  months  later,  to  declare  a  dividend 
of  seven  per  cent  on  the  capital  stock. 

Sometimes,  as  the  above  illustration  will  show, 
the  causes  of  high  production  cost  may  be  discovered 
by  accident.  Occasionally  a  manufacturer  or  shop 
superintendent,  though  knowing  nothing  of  the  broad 
field  of  economies  of  production  in  which  rich  har- 
vests of  dividends  may  be  reaped,  will  stumble  by 
chance  upon  some  item  of  wasted  time  that  is  causing 
needless  expense.  But  chance  cannot  be  relied  on 
to  furnish  a  satisfactory  solution  of  the  problem  of 
the  minimum  costs  of  production.  The  causes  lie 
hidden  too  far  back  in  shop  methods  and  processes. 
Only  the  keen  and  experienced  eye  can  see  that  the 
machines  are  not  being  operated  in  the  most  eco- 
nomical manner.  The  men  who  are  going  to  the  sup- 
ply-room or  returning  therefrom  with  stock  for  a 
new  job  are  busy  enough,  but  their  machines  are 
not  running!  The  group  around  the  tool-room  win- 
dow getting  the  clamps,  tools,  and  appliances  for 
their  next  task  seem  to  be  doing  necessary  work, 
but — ^their  machines  are  shut  down!  The  line  of  men 
at  the  grinding  tools  are  doing  something  that  must 
be  done  by  somebody,  but — each  is  grinding  his 
tool  in  his  own  individual  manner,  and  in  the  mean- 
time stock  is  waiting,  machines  are  standing  idle. 
This  workman  clamping  a  piece  in  a  machine  has 


EXPENSE  OF  WASTED  TIME  249 

been  busily  at  work  for  fifteen  minutes  and  the  job 
is  not  yet  set  up  ready  for  machining,  though  it 
could  be  done  in  five  minutes  with  proper  instruc- 
tions and  supervision.  That  machine,  too,  has  been 
shut  down  for  ten  wasted  minutes.  Look  at  the  ma- 
chines that  are  rapidly  turning — yet  how  can  the 
management  be  sure  that  the  men  now  operating 
them  are  using  the  standard  speeds  and  feeds  and 
getting  the  most  out  of  the  machines  and  tools?  All 
of  these  conditions  are  factors  that  cut  the  output  of 
the  ordinary  shop  far  below  what  it  should  be.  But 
each  unit  is  so  small,  so  seemingly  unimportant,  and 
so  buried  under  the  bustling  routine  of  a  busy  shop, 
that  they  are  overlooked  or  passed  over  as  imworthy 
of  notice. 

As  a  matter  of  fact,  it  is  the  little  things  that 
count,  the  hidden  factors  that  must  be  most  carefully 
analyzed.  The  big  things,  the  open  and  easily  recog- 
nized factors  of  large  production  costs,  have  long 
since  been  weeded  out.  Anybody  can  see  that  paying 
three-dollar  workmen  six  dollars  a  day  will  make  a 
hopeless  dent  in  the  dividend  rate;  it  takes  careful 
analysis  of  conditions  and  painstaking  experiment  to 
introduce  methods  that  will  enable  the  three-dollar 
workman  to  double  or  treble  his  output  with  profit 
to  himself  and  to  his  employer. 

While  the  consideration  of  the  amount  of  time 
lost  in  the  running  of  machines  will  furnish  the  most 
convenient  starting  point  from  which  to  estimate  and 
analyze  losses  from  wasted  time,  this  starting  point 
is  not  always  present.  Many  establishments,  even 
among  those  organized  to  depend  primarily  upon  low 
cost  of  production  for  their  profits,  have  very  few 


260  BUSINESS  PEINCIPLES 

machines  or  even  none  at  all.  In  all  establishments 
of  any  size  or  importance  there  are  producing  depart- 
ments where  the  workmen  do  not  use  machines. 
This  is  usually  the  case  in  the  finishing  processes 
of  manufacture,  the  assembling  of  parts,  the  polish- 
ing and  garnishing  and  packing  for  shipment  of  the 
finished  article.  It  becomes  necessary  therefore  to 
give  some  consideration  to  the  determination  of 
standard  times  for  machineless  work,  or  skilled  hand- 
work, as  distinguished  from  work  done  primarily  on 
machines. 

The  study  of  the  standard  time  and  the  proper 
conditions  for  skilled  handwork  is  naturally  very 
difficult.  When  we  are  dealing  with  machinery  and 
high-speed  steel  and  proper  cutting  angles  it  is  com- 
paratively easy  to  carry  on  exact  scientific  experi- 
ments by  varying  the  factors  to  any  desired  degree. 
Even  the  speed  of  the  machining  operations  is  largely 
determined,  not  by  the  workman,  but  by  shifting  the 
gears  that  control  the  driving  wheel.  With  hand- 
work, however,  we  are  not  dealing  with  things,  but 
with  men.  The  factors  of  human  judgment  and  hu- 
man dexterity  bulk  so  large  in  work  of  this  kind  that 
the  closest  analysis  will  often  fall  short  of  yielding 
scientific  results.  Machine  speed  can  be  easily  con- 
trolled within  any  desired  limits;  it  is  only  a  matter 
of  power  and  gears.  But  a  workman's  speed  on 
assembling  or  polishing  or  packing,  even  his  greatest 
possible  speed,  will  vary  with  his  personal  intelli- 
gence, dexterity,  and  the  ninnber  of  years  of  experi- 
ence he  has  had.  On  machining  work,  even  a  green 
hand,  if  intelligent,  can  by  following  instructions 
soon  attain  the  maximum  speed  and  efficiency.    On 


EXPENSE  OF  WASTED  TIME  251 

skilled  handwork,  the  man  elected  to  carry  on  the 
experiments  cannot  attain  a  rate  of  speed  equal  to 
that  of  the  workman  who  has  been  at  the  work  for 
a  number  of  years  and  whose  operations  are  in  large 
part  automatic.  The  tests,  therefore,  will  have  to 
be  made  by  some  workman  of  considerable  experi- 
ence and  more  than  usual  skill  and  dexterity.  Here 
considerable  caution  must  be  observed.  It  the  work- 
man knows  he  is  being  tried  out,  he  will  immediately 
slacken  his  pace,  and  unless  he  is  placed  beyond 
temptation  in  this  respect,  results  so  secured  will  be 
worthless.  The  problems  connected  with  time-study 
of  workmen  and  their  operations  will  call  for  care- 
ful analysis  when  we  come  to  consider  systems  of 
paying  wages. 

In  considering  the  economical  organization  of  men 
employed  in  assembling  and  fitting  work,  the  prin- 
ciple of  division  of  labor  should  be  emphasized.  It 
is  of  great  importance  to  separate  such  operations 
into  as  small  a  number  as  possible.  The  difficulty 
of  determining  the  standard  time  for  work  increases 
with  the  number  and  complexity  of  the  operations. 
Where  the  workman  is  confined  to  one  or  two  opera- 
tions the  problem  is  not  difficult.  But  in  assembling 
work,  for  example,  the  workman  will  often  be  found 
to  have  to  perform  from  eight  to  a  dozen  operations 
on  a  particular  piece.  Each  additional  operation  not 
only  makes  the  determination  of  standard  time  more 
difficult,  but  gives  the  worker  an  additional  oppor- 
tunity to  idle  away  his  time  without  seeming  to  do 
so.  For  this  very  reason  the  waste  of  time  on  hand- 
work deserves  the  closest  consideration. 

Let  us  consider  what  steps  should  be  taken  in 


252  BUSINESS  PEINCIPLES 

securing  the  maximum  efficiency  of  a  number  of 
workers  whose  tasks  involve  considerable  complexity 
and  skill.  Supose  we  are  considering  a  department 
in  which  the  different  parts  of  some  complex  ma- 
chine, as  a  typewriter,  a  sewing-machine  or  an  auto- 
mobile are  fitted  together  into  a  complete  whole. 

1.  First  should  come  a  classification  of  the  work. 
This,  as  explained  in  part,  will  have  several  objects. 
A  classification  depending  upon  similarity  of  design, 
shape,  and  hand  operations  necessary  simplifies  and 
shortens  the  work  of  determining  standard  times  for 
all  the  parts.  This  also  facilitates  the  task  of  more 
thoroughly  specializing  the  work  so  that  each  man 
shall  ultimately  perform  only  a  portion  of  the  task 
that  he  formerly  put  through  entirely. 

2.  Careful  experiment  and  test  must  be  made  by 
some  skilled  workman.  It  may  be  possible  to  secure 
his  hearty  support  to  the  plans  of  determining  mini- 
mum time  by  offering  him  double  pay  or  paying  him 
an  additional  amount  for  each  second  clipped  off  the 
former  record.  If  possible,  a  man  should  be  secured 
who  does  not  expect  to  take  up  the  work  after  his 
experiments  are  concluded.  In  any  case  he  should 
be  made  to  understand  that  the  experiments  are  not 
to  be  used  as  a  club  to  drive  wages  down,  but  as 
a  basis  for  a  new  system  that  will  secure  larger  out- 
put for  the  company  and  a  guarantee  of  permanently 
higher  wages  for  the  workmen.  After  all,  the  best 
way  to  make  sure  that  the  tester  is  giving  his  hearti- 
est support  to  the  undertaking  is  to  take  him  out  of 
the  rank  of  laborers  and  make  him  a  job-boss  or 
assistant  foreman,  with  promise  of  promotion  to  a 
foremanship,  if  his  work  justifies.    This  will  have  an 


EXPENSE  OF  WASTED  TIME  353 

important  bearing  on  the  solution  of  the  problem. 
The  workmen  are  not  in  a  position  to  prevent  a 
thorough  investigation  made  by  a  superior  officer, 
but  win.  bring  the  strongest  kind  of  pressure  to  bear 
on  any  one  of  themselves  who  attempts  such  work 
in  order  to  keep  him  to  the  slowest  pace  possible 
without  detection. 

The  tester  or  the  man  chosen  to  carry  on  experi- 
ments should  have  his  time  recorded,  not  only  on  each 
complete  job  as  a  whole,  but  also  on  each  separate 
operation.  When  the  workmen  are  re-classified,  so 
that  the  work  of  each  one  is  limited  to  one  or  two 
operations  only,  these  records  make  it  easier  to 
demonstrate  that  the  work  can  be  put  through  in  the 
specified  time.  With  the  narrowed  field  of  work  the 
power  of  the  workmen  to  conceal  the  best  results 
possible  is  correspondingly  restricted. 

3.  It  is  always  well,  in  investigation  work  of  this 
kind,  to  get  records  from  ordinary  workmen,  using 
a  stop-watch  so  that  the  time  the  ordinary  man  takes 
to  perform  each  operation  can  be  recorded  as  far  as 
possible.  For  this  purpose  the  ordinary  man's  opera- 
tions should  be  divided  up  into  the  smallest  possible 
sections,  so  that  it  may  be  seen  wherein  and  why  his 
record  fails  to  come  up  to  that  of  the  tests.  The 
object  of  this  is,  naturally,  to  form  a  basis  on  which 
to  start  a  campaign  of  reform.  The  two  records 
should  be  brought  before  the  general  advisory  board, 
the  superintendent,  and  the  head  of  the  department 
concerned.  When  compared  they  will  show,  if  care- 
fully compiled,  the  points  of  wasted  time  in  the  ordi- 
nary methods  of  doing  things.  Instruction  cards  can 
then  be  made  out,  with  all  the  time  elements  and  tool 


254  BUSINESS  PEINCIPLES 

conditions  described  as  in  machining  operations. 

It  goes  without  saying  that  the  factors  which 
cause  wasted  time  with  machinists  will  often  be 
found  to  prevail  with  skilled  hand  workmen.  Run- 
ning to  the  suply-room  for  stock  for  a  new  job,  or 
to  the  tool-room  for  tools,  will  eat  up  profits  as  fast 
in  one  department  or  in  one  kind  of  work  as  in 
another. 

In  making  tests,  whether  in  machining  or  other- 
wise, it  is  of  vital  importance  to  surround  the  tester 
with  the  best  possible  conditions.  In  this  connection, 
moreover,  it  must  be  borne  in  mind  that  the  ordinary 
workmen  cannot  be  expected  to  come  up  to  the  mark 
set  for  them  unless  the  same  conditions  prevail  for 
their  operations.  The  importance  of  surrounding  the 
workman  with  all  the  accessories  to  rapid  production 
is  seldom  recognized  in  the  average  shop.  Thus  in 
the  insulating  department  referred  to  above  we  saw 
how  much  time  was  wasted  because  of  piling  stock 
indiscriminately  on  floor  and  benches,  of  leaving  tools 
everywhere  in  general  and  nowhere  in  particular, 
and  other  details  that  kept  the  men  busy  on  unneces- 
sary "fussing  around." 

What  may  be  called  the  small  details  essential  to 
rapid  and  efficient  manufacture  may  be  further  speci- 
fied. First,  it  is  important  that  all  the  stock  and 
parts  shall  come  to  the  tester  and  to  the  workman 
fully  inspected  as  to  the  accuracy  of  previous  opera- 
tions. The  inspection  should,  if  possible,  be  more 
severe  and  thorough  as  the  work  proceeds  through 
the  various  processes  of  manufacture,  for  the  loss 
from  spoiling  a  part  that  is  reaching  its  final  stages 
is  greater  than  if  it  comes  before  much  labor-time 


EXPENSE  OP  WASTED  TIME  265 

has  been  put  into  it.  It  is  in  the  final  assembling 
work,  where  all  the  different  parts  are  fitted  together 
into  the  completed  machine,  that  the  accuracy  or  in- 
accuracy of  previous  operations  will  make  a  vast  dif- 
ference in  the  amount  of  time  and  labor  required. 
Thus,  wherever  possible,  thorough  inspection  should 
provide  for  such  accuracy  of  parts  that  the  assembler 
will  not  find  it  necessary  to  do  any  grinding  or  filing 
in  order  to  make  the  parts  fit  into  each  other.  It 
is  partly  because  such  grinding  and  filing  may  some- 
times be  necessary  and  sometimes  may  not  that  the 
difiiculty  arises  of  determining  any  standard  time 
and  conditions  for  such  work.  It  should  be  possible 
by  means  of  tests,  standard  conditions,  instruction 
cards  and  careful  supervision  applied  to  the  earlier 
stages  of  the  work,  to  secure  such  accuracy  of  sizes 
and  shapes  as  to  remove  from  the  final  fitting  to- 
gether any  necessity  for  grinding  and  drilling. 
Where,  however,  absolute  perfection  in  this  work, 
or  such  degree  of  perfection  as  to  answer  all  pur- 
poses, cannot  be  secured,  the  necessary  machinery 
for  doing  such  grinding,  filing  and  drilling  should  be 
placed  within  convenient  reach  of  the  workmsin. 

All  the  parts  required  for  the  work  should  be  not 
only  placed  within  convenient  reach  of  the  workman, 
but  should  be  arranged  in  logical  order.  This  is 
particularly  important  in  the  work  of  fitting  several 
parts  together,  as  it  saves  time  in  considering  what 
should  come  next.  This  principle  is  an  important 
one,  moreover,  in  facilitating  the  rapid  handling  of 
all  kinds  of  work.  It  should  be  applied  not  only  to 
stock  and  parts,  but  also  to  rivets,  screws  and  tools 
of  every  description.     If  everything  required  for 


256  BUSINESS  PRINCIPLES 

work  is  put  within  easy  reach,  arranged  in  logical 
order,  and  located  in  a  standard  place,  both  the 
temptation  and  the  possibility  of  wasting  time  is  re- 
moved from  the  operator. 

The  most  effective  methods  of  facilitating  the 
handling  of  stock  and  parts  wiU  require  careful 
adaptation  to  the  nature  of  the  work.  The  putting 
together  of  the  parts  of  a  watch  will  present  entirely 
different  problems  from  those  of  setting  up  a  bicycle, 
and  bicycle  work  wiU  require  different  treatment 
from  the  assembling  of  an  automobile.  In  the  case  of 
heavy  parts,  a  thorough  system  of  hoists  should  be 
provided.  Where  the  parts  are  light,  particular  at- 
tention to  placing  them  in  convenient  and  logical 
order  will  be  necessary  in  order  to  avoid  waste  of 
time  in  handling,  because,  as  we  have  seen,  handling 
time  is  so  much  the  larger  proportion  of  the  total 
time  where  the  parts  are  small. 

Examples  of  the  tremendous  savings  made 
through  the  standardizing  of  operations  and  the 
elimination  of  factors  causing  wasted  hours  could  be 
multiplied  almost  indefinitely.  Not  long  ago  the  head 
of  an  electrical  manufacturing  concern  became  con- 
vinced that  one  of  his  departments,  where  the  assem- 
bling of  small  dynamos  was  carried  on,  could  be  im- 
proved by  a  change  of  foremanship.  So  he  deposed 
the  former  head  of  this  department  and  put  in  the 
place  a  young  mechanical  engineer  who  had  been 
recommended  to  him  as  a  ** wizard."  In  this  depart- 
ment were  eighty  men,  all  supposed  to  be  skilled 
mechanics,  whose  pay  averaged  $4.00  a  day. 

The  new  foreman  immediately  instituted  a  series 
of  tests,  the  thoroughness  and  accuracy  of  which 


EXPENSE  OF  WASTED  TIME  241 

employer's  money  was  simply  tremendous,  yet  the 
foreman,  standing  by  with  a  smile  on  his  face,  com- 
placently remarked ;    *  *  Pretty  busy  lot,  eh  ^  " 

They  were  busy,  but  not  productive;  they  were 
industrious,  but  their  activities  were  not  earning  ade- 
quate profits  for  the  company,  nor,  as  a  glance  at  the 
pay-roll  showed,  more  than  meagre  wages  for  them- 
selves. Consider  in  how  many  ways  production  in 
this  department  could  have  been  speeded  up  without 
any  additional  labor  on  the  part  of  the  men.  In  the 
first  place,  the  supply-room  could  have  collected  sup- 
plies of  glue,  mica  and  tape  and  passed  them  out  in 
standard  lots,  so  that  only  one  trip  would  be  neces- 
sary instead  of  three.  The  lots  could  have  been  made 
large  enough  to  last  a  whole  day  or  at  least  half  a 
day,  so  that  only  one  or  at  most  two  trips  a  day  for 
each  man  would  have  been  necessary.  As  the  depart- 
ment was  then  run,  each  man  decided  for  himself  just 
how  much  of  each  accessory  he  wanted  to  call  for, 
and  those  that  were  fond  of  knocking  off  work  to  run 
about  the  place  took  care  to  secure  only  a  handful 
of  mica  or  a  few  rolls  of  tape  at  a  time,  so  that  it 
would  not  last  long.  Those  that  tried  to  economize 
their  time  by  getting  two  or  three  things  at  once  and 
in  large  amounts,  were  frowned  upon  by  the  others, 
as  they  were  suspected  of  a  desire  to  speed  up  the 
work  and  set  a  fast  pace  for  the  rest.  And  the  men 
were  perfectly  right  in  this  contention.  The  work 
was  paid  for  at  piece  rates,  and  according  to  the 
cheerful  statement  of  the  foreman,  the  rate  had  been 
cut  once  or  twice  already;  the  men  fully  understood 
that  any  effort  on  their  part  to  increase  the  rate  of 
output  would  act  on  the  foreman  as  a  red  rag  does 


342  BUSINESS  PEINCIPLES 

on  a  bull,  and  down  would  go  their  pay.  With  such 
a  system  in  vogue,  both  the  men  and  the  company 
were  like  two  children  on  a  see-saw;  if  one  went  up 
the  other  must  go  down.  The  only  thing  the  work- 
men could  do  was  to  give  an  appearance  of  great  in- 
dustry, and  make  the  foreman  think  they  were 
straining  every  nerve  to  get  the  work  out  fast.  And 
in  this  they  succeeded,  though  none  of  the  parties 
concerned  knew  at  what  money  cost,  to  the  men  in 
wages  and  to  the  company  in  profits,  this  success  was 
achieved. 

There  was,  in  the  department  described,  no  fixed 
place  for  each  workman  to  put  the  accessories  of 
his  work.  The  coils  to  be  insulated  were,  of  course, 
set  up  in  frames  or  standards;  but  the  mica  and  tape 
were  piled  indiscriminately  on  the  floor  or  on 
benches,  wherever  there  happened  to  be  a  clear  space, 
sometimes  two  piles  would  get  mixed,  and  then  the 
workmen  would  stop  and  separate  them — ^result,  time 
wasted.  Nearly  every  man  lost  considerable  time 
looking  around  for  his  glue-pot  or  his  tape,  for  there 
being  no  fixed  place  for  anything,  articles  could  only 
be  found  where  they  had  last  been  thrown.  It  was 
the  same  way  with  cutters,  knives,  and  other  tools. 

No  two  of  the  men  did  the  work  in  exactly  the 
same  way.  Some  laid  the  tape  on  thick,  others  over- 
lapped it  only  narrowly.  Some  cut  the  mica  strips 
narrow,  others  cut  them  wide.  Some  splashed  the 
glue  over  everything,  others  were  sparing  in  its  use. 
The  foreman  evidently  preferred  to  let  each  man 
pursue  his  own  methods  and  made  no  protest  unless 
the  coils  actually  came  back  from  the  tests  inade- 
quately insulated.   Here  was  a  loss  from  two  sources. 


EXPENSE  OF  WASTED  TIME  243 

In  the  first  place,  as  there  was  no  standard  time  or 
conditions  of  performing  the  operation,  a  great  deal 
of  time  was  wasted  from  the  hit-or-miss  methods 
of  work.  Second,  no  accomit  whatever  was  taken  of 
the  amount  of  materials  used  by  each  man  in  per- 
forming his  task.  The  men  were  allowed  to  use  as 
much  or  as  little  as  they  chose,  a  system  resulting 
in  great  waste  of  supplies. 

To  remedy  these  conditions  there  was  needed  first 
of  all  a  system  of  paying  for  the  work  that  would 
make  if  of  vital  interest  for  each  man  to  increase  his 
output  to  its  maximum.  The  standard  minimum 
time  for  the  operations  should  have  been  determined, 
and  a  piece  rate  set  on  that  basis,  with  an  absolute 
guarantee  that  the  rate  would  not  be  cut  under  any 
circumstances.  It  might  even  have  been  well  to  set 
a  task  with  a  differential  rate  of  pay — ^this  subject 
will  come  up  for  fuller  consideration  later.  The 
determination  of  standard  time  for  the  operation 
would  have  caused  savings  in  several  directions.  It 
would  have  given  the  workmen  the  methods  by  which 
the  operations  could  be  put  through  in  the  shortest 
possible  time.  The  setting  up  and  taking  down  of 
the  work  would  have  been  very  materially  facilitated 
and  hastened  by  standard  methods.  The  machining 
itself,  if  we  may  so  call  it,  would  have  been  put 
through  not  only  in  a  shorter  time  but  in  a  much 
better  way.  Positive  and  unmistakable  instructions 
as  to  the  use  of  the  glue,  the  width  and  overlap  of  the 
mica,  and  the  winding  of  the  tape,  would  have  ef- 
fected a  saving  in  supplies  and  at  the  same  time 
secured  the  most  effective  use  of  materials.   By  this 


244  BUSINESS  PEINCIPLES 

plan  the  losses  from  improper  insulation  would  have 
been  practically  eliminated. 

Next,  the  time  lost  by  the  workmen  in  running 
to  the  supply-room  for  materials  could  have  been 
not  only  cut  down  by  the  plan  indicated  above,  but 
probably  could  have  been  eliminated  altogether.  An 
adequate  supply-room  force,  acting  in  cooperation 
with  the  order-of-work  clerk  and  the  instruction 
card  men,  could  have  found  out  beforehand  just  what 
and  how  much  material  would  be  needed  by  each 
workman  for  the  work  planned  for  the  day.  These 
could  be  collected,  put  in  convenient  boxes,  and  taken 
to  the  workman  before  he  was  ready  for  them. 

This  plan  would  put  into  very  effective  operation 
the  saving  in  the  use  of  materials.  The  boxes  should 
be  of  standard  size,  and  made  especially  for  con- 
venience in  holding  the  materials  to  be  required.  If 
this  plan  were  carried  out  in  all  departments  the 
total  saving  in  time  and  materials  alone  would  be 
tremendous.  These  boxes  should  contain  pockets  in 
the  side  in  which  the  necessary  instruction  and 
record  cards  might  be  placed. 

The  use  of  boxes  as  described  would  prevent  the 
indiscriminate  scattering  of  materials  on  the  floor 
and  benches,  with  the  disorder  and  loss  of  time  en- 
tailed. The  removal  of  stock  from  the  box  by  the 
workman  would  be  facilitated  and  hastened  by  hav- 
ing everything  in  a  definite  place.  This  advantage 
could  be  further  realized  by  careful  judgment  in 
selecting  the  place  where  the  box  should  stand.  A 
low  table  or  bench  placed  within  easy  reach  of  the 
workman's  hand  would  immediately  standardize  the 
place  where  the  stock  should  be  placed  and  could  be 


EXPENSE  OF  WASTED  TIME  245 

made  to  hold  the  coils  to  be  insulated,  the  box  of 
supplies,  and  the  finished  stock.  The  truckers  who 
brought  the  coils  in  from  the  winding  department 
could  be  required  to  unload  the  coils  onto  these 
benches,  thus  making  it  unnecessary  for  the  work- 
man to  leave  his  machine  to  get  pieces  off  the  trucks. 
The  boxes  on  low  tables  would  save  the  work  and 
time  of  the  operator  in  stooping  over  to  pick  the 
supplies  off  the  floor  or  from  inconvenient  places  on 
the  bench.  The  fact  that  these  boxes  would  always 
be  in  the  same  position,  and  that  the  workman  would 
become  accustomed  to  finding  his  materials  always 
in  the  same  spot,  would  add  appreciably  to  the  speed 
of  handling. 

Few  manufacturers  realize  what  costly  methods 
are  in  operation  in  their  own  shops.  They  see  their 
men  busy,  or  apparently  so,  and  if  the  profit  and  loss 
sheet  shows  sadly  inadequate  results,  they  look 
everywhere  but  in  the  proper  place  for  the  cause. 
And  it  often  takes  a  most  keenly  analytical  eye  to 
tell  whether  an  intelligent  workman  is  at  least  four- 
fifths  as  busy  as  he  looks  or  only  two-fifths.  The 
workman  may  not  be  conscious  of  the  fact  that  he 
is  wasting  his  time ;  then  again  he  may,  but  it  makes 
no  difference  in  the  final  analysis.  No  matter  how 
industrious  the  workmen  may  seem,  in  ninety-nine 
cases  out  of  a  hundred  a  careful  analysis  will  show 
that  time  is  being  wasted,  consciously  or  uncon- 
sciously. 

The  starting  point  for  such  an  analysis  will  be 
made  in  most  cases  most  profitably  by  considering 
how  much  of  his  time  the  workman  spends  actually 
running  his  machine.     This  is  the  central  point. 


246  BUSINESS  PEINCIPLES 

Every  moment  counts  for  profit  while  the  machine 
is  running;  it  counts  for  more  profit  if  the  machine 
is  running  imder  the  best  and  most  efficient  condi- 
tions. Conversely,  every  moment  counts  for  loss  if 
the  machine  is  shut  down,  or  the  production  opera- 
tions are  suspended  because  the  workman  is  attend- 
ing to  matters  outside  of  his  special  work. 

The  ways  and  means  employed  by  workmen  for 
wasting  their  time  are  not  copyrighted,  hence  there 
will  have  to  be  a  new  solution  of  the  problem  in  each 
particular  case.  Oftentimes  the  workman  himself 
will  honestly  think  he  is  doing  his  best,  and  that 
makes  it  doubly  difficult  for  an  employer,  probably 
not  any  too  familiar  with  the  details  of  the  machining 
operations  in  his  own  shops,  to  pick  out  the  flaws  in 
the  weaving.  They  can  often  be  determined  only  by 
careful  and  exhaustive  experiment  by  an  expert  who 
knows  just  what  the  problem  is.  And  to  get  the 
highest  results  the  test  method  will  always  have  to 
be  adopted.  And  yet  hundreds  of  instances  are 
recorded  of  valuable  steps  toward  improvement 
taken  from  simple  observation. 

Not  long  ago  a  certain  manufacturer  was  walking 
through  his  shop.  That  day  he  had  received  from  his 
accountant  a  statement  of  the  profit  and  loss  of  the 
establishment  for  the  year  past,  and  the  two  items 
had  balanced  so  evenly  that  there  was  no  possibility 
of  declaring  an  honest  dividend  for  the  year.  He  had 
done  everything  in  his  power  during  the  year  to 
conduct  the  business  in  the  most  progressive  and  eco- 
nomical manner.  The  sales  had  been  large  and  the 
market  had  been  held  fairly  well.  But  there  had 
been  apparently  a  continual  absorption  of  working 


EXPENSE  OF  WASTED  TIME  247 

capital  into  machinery  and  stock,  deliveries  had  been 
delayed  in  such  a  way  as  to  injure  seriously  the 
organization  of  his  selling  force,  while  large  and  un- 
expected costs  that  he  could  in  no  wise  account  for 
had  put  his  expenses  up  to  a  no-dividend  amount. 
This  man  knew  little  or  nothing  of  the  machining 
operations  in  his  shop,  believing  that  all  such  matters 
could  safely  be  left  to  the  foremen.  As  he  walked 
along,  everything  seemed  to  be  running  efficiently 
and  smoothly.  How  busy  the  workmen  were !  One 
and  all  seemed  to  be  on  the  qui  vive.  Here  are  the 
tool-grinders,  with  a  line  of  men,  each  impatiently 
waiting  his  turn.  Suddenly  the  thought  struck  him 
that,  however  impatient  these  men  might  be  to  get 
their  tools  ground,  for  the  time  that  they  stood  there 
they  were  producing  nothing.  Each  man  repre- 
sented a  machine  standing  idle,  stock  waiting  to  be 
put  through  the  factory,  tools  and  equipment  and 
plant  itself  earning  no  dividends,  wages  paid  for  idle 
hours.  The  manufacturer  placed  himself  in  an  ob- 
scure comer  where  he  could  watch  the  grinding 
tools,  took  out  his  watch,  and  made  notes  on  a  slip 
of  paper  relative  to  the  number  of  men  in  the  waiting 
line  and  the  time  consumed  by  each  in  waiting  his 
turn  and  grinding  his  tools.  At  the  end  of  the  day 
a  simple  calculation  told  him  that  on  the  average 
every  man  in  his  establishment  used  up  six  per  cent 
of  his  time  grinding  tools.  Thereupon  he  introduced 
a  change  in  the  handling  of  this  work.  He  employed 
a  few  men  to  give  their  exclusive  time  to  the  grind- 
ing of  tools  and  arranged  to  have  well  ground  tools 
delivered  to  each  workman  with  each  job.  He  intro- 
duced no  other  of  the  score  of  economies  that  an  ex- 


248  BUSINESS  PRINCIPLES 

pert  would  have  found  possible  in  his  shop  methods, 
because  he  knew  practically  nothing  of  the  nature 
of  the  problem  before  him,  of  what  could  be  done 
with  standard  conditions  of  machining,  with  stand- 
ard tools  and  economical  handling  of  stock.  Yet  the 
saving  of  the  workmen's  time  in  grinding  tools  alone 
enabled  him,  six  months  later,  to  declare  a  dividend 
of  seven  per  cent  on  the  capital  stock. 

Sometimes,  as  the  above  illustration  will  show, 
the  causes  of  high  production  cost  may  be  discovered 
by  accident.  Occasionally  a  manufacturer  or  shop 
superintendent,  though  knowing  nothing  of  the  broad 
field  of  economies  of  production  in  which  rich  har- 
vests of  dividends  may  be  reaped,  will  stumble  by 
chance  upon  some  item  of  wasted  time  that  is  causing 
needless  expense.  But  chance  cannot  be  relied  on 
to  furnish  a  satisfactory  solution  of  the  problem  of 
the  minimum  costs  of  production.  The  causes  lie 
hidden  too  far  back  in  shop  methods  and  processes. 
Only  the  keen  and  experienced  eye  can  see  that  the 
machines  are  not  being  operated  in  the  most  eco- 
nomical manner.  The  men  who  are  going  to  the  sup- 
ply-room or  returning  therefrom  with  stock  for  a 
new  job  are  busy  enough,  but  their  machines  are 
not  running!  The  group  around  the  tool-room  win- 
dow getting  the  clamps,  tools,  and  appliances  for 
their  next  task  seem  to  be  doing  necessary  work, 
but — ^their  machines  are  shut  down!  The  line  of  men 
at  the  grinding  tools  are  doing  something  that  must 
be  done  by  somebody,  but — each  is  grinding  his 
tool  in  his  own  individual  manner,  and  in  the  mean- 
time stock  is  waiting,  machines  are  standing  idle. 
This  workman  clamping  a  piece  in  a  machine  has 


EXPENSE  OF  WASTED  TIME  249 

been  busily  at  work  for  fifteen  minutes  and  the  job 
is  not  yet  set  up  ready  for  machining,  though  it 
could  be  done  in  five  minutes  with  proper  instruc- 
tions and  supervision.  That  machine,  too,  has  been 
shut  down  for  ten  wasted  minutes.  Look  at  the  ma- 
chines that  are  rapidly  turning — yet  how  can  the 
management  be  sure  that  the  men  now  operating 
them  are  using  the  standard  speeds  and  feeds  and 
getting  the  most  out  of  the  machines  and  tools?  All 
of  these  conditions  are  factors  that  cut  the  output  of 
the  ordinary  shop  far  below  what  it  should  be.  But 
each  unit  is  so  small,  so  seemingly  unimportant,  and 
so  buried  under  the  bustling  routine  of  a  busy  shop, 
that  they  are  overlooked  or  passed  over  as  unworthy 
of  notice. 

As  a  matter  of  fact,  it  is  the  little  things  that 
count,  the  hidden  factors  that  must  be  most  carefully 
analyzed.  The  big  things,  the  open  and  easily  recog- 
nized factors  of  large  production  costs,  have  long 
since  been  weeded  out.  Anybody  can  see  that  paying 
three-dollar  workmen  six  dollars  a  day  will  make  a 
hopeless  dent  in  the  dividend  rate;  it  takes  careful 
analysis  of  conditions  and  painstaking  experiment  to 
introduce  methods  that  will  enable  the  three-dollar 
workman  to  double  or  treble  his  output  with  profit 
to  himself  and  to  his  employer. 

While  the  consideration  of  the  amount  of  time 
lost  in  the  running  of  machines  will  furnish  the  most 
convenient  starting  point  from  which  to  estimate  and 
analyze  losses  from  wasted  time,  this  starting  point 
is  not  always  present.  Many  establishments,  even 
among  those  organized  to  depend  primarily  upon  low 
cost  of  production  for  their  profits,  have  very  few 


250  BUSINESS  PRINCIPLES 

machines  or  even  none  at  all.  In  all  establishments 
of  any  size  or  importance  there  are  producing  depart- 
ments where  the  workmen  do  not  use  machines. 
This  is  usually  the  case  in  the  finishing  processes 
of  manufacture,  the  assembling  of  parts,  the  polish- 
ing and  garnishing  and  packing  for  shipment  of  the 
finished  article.  It  becomes  necessary  therefore  to 
give  some  consideration  to  the  determination  of 
standard  times  for  machineless  work,  or  skilled  hand- 
work, as  distinguished  from  work  done  primarily  on 
machines. 

The  study  of  the  standard  time  and  the  proper 
conditions  for  skilled  handwork  is  naturally  very 
difficult.  When  we  are  dealing  with  machinery  and 
high-speed  steel  and  proper  cutting  angles  it  is  com- 
paratively easy  to  carry  on  exact  scientific  experi- 
ments by  varying  the  factors  to  any  desired  degree. 
Even  the  speed  of  the  machining  operations  is  largely 
determined,  not  by  the  workman,  but  by  shifting  the 
gears  that  control  the  driving  wheel.  With  hand- 
work, however,  we  are  not  dealing  with  things,  but 
with  men.  The  factors  of  himaan  judgment  and  hu- 
man dexterity  bulk  so  large  in  work  of  this  kind  that 
the  closest  analysis  will  often  fall  short  of  yielding 
scientific  results.  Machiue  speed  can  be  easily  con- 
trolled within  any  desired  limits ;  it  is  only  a  matter 
of  power  and  gears.  But  a  workman's  speed  on 
assembling  or  polishing  or  packing,  even  his  greatest 
possible  speed,  will  vary  with  his  personal  intelli- 
gence, dexterity,  and  the  number  of  years  of  experi- 
ence he  has  had.  On  machining  work,  even  a  green 
hand,  if  intelligent,  can  by  following  instructions 
soon  attain  the  maximum  speed  and  efficiency.    On 


EXPENSE  OF  WASTED  TIME  251 

skilled  handwork,  the  man  elected  to  carry  on  the 
experiments  cannot  attain  a  rate  of  speed  equal  to 
that  of  the  workman  who  has  been  at  the  work  for 
a  number  of  years  and  whose  operations  are  in  large 
part  automatic.  The  tests,  therefore,  will  have  to 
be  made  by  some  workman  of  considerable  experi- 
ence and  more  than  usual  skill  and  dexterity.  Here 
considerable  caution  must  be  observed.  It  the  work- 
man knows  he  is  being  tried  out,  he  will  immediately 
slacken  his  pace,  and  unless  he  is  placed  beyond 
temptation  in  this  respect,  results  so  secured  will  be 
worthless.  The  problems  connected  with  time-study 
of  workmen  and  their  operations  will  call  for  care- 
ful analysis  when  we  come  to  consider  systems  of 
paying  wages. 

In  considering  the  economical  organization  of  men 
employed  in  assembling  and  fitting  work,  the  prin- 
ciple of  division  of  labor  should  be  emphasized.  It 
is  of  great  importance  to  separate  such  operations 
into  as  small  a  number  as  possible.  The  difficulty 
of  determining  the  standard  time  for  work  increases 
with  the  number  and  complexity  of  the  operations. 
Where  the  workman  is  confined  to  one  or  two  opera- 
tions the  problem  is  not  difficult.  But  in  assembling 
work,  for  example,  the  workman  wiU  often  be  found 
to  have  to  perform  from  eight  to  a  dozen  operations 
on  a  particular  piece.  Each  additional  operation  not 
only  makes  the  determination  of  standard  time  more 
difficult,  but  gives  the  worker  an  additional  oppor- 
tunity to  idle  away  his  time  without  seeming  to  do 
so.  For  this  very  reason  the  waste  of  time  on  hand- 
work deserves  the  closest  consideration. 

Let  us  consider  what  steps  should  be  taken  in 


252  BUSINESS  PEINCIPLES 

securing  the  maximum  efficiency  of  a  number  of 
workers  whose  tasks  involve  considerable  complexity 
and  skill.  Supose  we  are  considering  a  department 
in  which  the  different  parts  of  some  complex  ma- 
chine, as  a  typewriter,  a  sewing-machine  or  an  auto- 
mobile are  fitted  together  into  a  complete  whole. 

1.  First  should  come  a  classification  of  the  work. 
This,  as  explained  in  part,  will  have  several  objects. 
A  classification  depending  upon  similarity  of  design, 
shape,  and  hand  operations  necessary  simplifies  and 
shortens  the  work  of  determining  standard  times  for 
all  the  parts.  This  also  facilitates  the  task  of  more 
thoroughly  specializing  the  work  so  that  each  man 
shall  ultimately  perform  only  a  portion  of  the  task 
fchat  he  formerly  put  through  entirely. 

2.  Careful  experiment  and  test  must  be  made  by 
some  skilled  workman.  It  may  be  possible  to  secure 
his  hearty  support  to  the  plans  of  determining  mini- 
mum time  by  offering  him  double  pay  or  paying  him 
an  additional  amount  for  each  second  clipped  off  the 
former  record.  If  possible,  a  man  should  be  secured 
who  does  not  expect  to  take  up  the  work  after  his 
experiments  are  concluded.  In  any  case  he  should 
be  made  to  understand  that  the  experiments  are  not 
to  be  used  as  a  club  to  drive  wages  down,  but  as 
a  basis  for  a  new  system  that  will  secure  larger  out- 
put for  the  company  and  a  guarantee  of  permanently 
higher  wages  for  the  workmen.  After  all,  the  best 
way  to  make  sure  that  the  tester  is  giving  his  hearti- 
est support  to  the  undertaking  is  to  take  him  out  of 
the  rank  of  laborers  and  make  him  a  job-boss  or 
assistant  foreman,  with  promise  of  promotion  to  a 
foremanship,  if  his  work  justifies.    This  will  have  an 


EXPENSE  OF  WASTED  TIME  253 

important  bearing  on  the  solution  of  the  problem. 
The  workmen  are  not  in  a  position  to  prevent  a 
thorough  investigation  made  by  a  superior  officer, 
but  will  bring  the  strongest  kind  of  pressure  to  bear 
on  any  one  of  themselves  who  attempts  such  work 
in  order  to  keep  him  to  the  slowest  pace  possible 
without  detection. 

The  tester  or  the  man  chosen  to  carry  on  experi- 
ments should  have  his  time  recorded,  not  only  on  each 
complete  job  as  a  whole,  but  also  on  each  separate 
operation.  When  the  workmen  are  re-classified,  so 
that  the  work  of  each  one  is  limited  to  one  or  two 
operations  only,  these  records  make  it  easier  to 
demonstrate  that  the  work  can  be  put  through  in  the 
specified  time.  With  the  narrowed  field  of  work  the 
power  of  the  workmen  to  conceal  the  best  results 
possible  is  correspondingly  restricted. 

3.  It  is  always  well,  in  investigation  work  of  this 
kind,  to  get  records  from  ordinary  workmen,  using 
a  stop-watch  so  that  the  time  the  ordinary  man  takes 
to  perform  each  operation  can  be  recorded  as  far  as 
possible.  For  this  purpose  the  ordinary  man's  opera- 
tions should  be  divided  up  into  the  smallest  possible 
sections,  so  that  it  may  be  seen  wherein  and  why  his 
record  fails  to  come  up  to  that  of  the  tests.  The 
object  of  this  is,  naturally,  to  form  a  basis  on  which 
to  start  a  campaign  of  reform.  The  two  records 
should  be  brought  before  the  general  advisory  board, 
the  superintendent,  and  the  head  of  the  department 
concerned.  When  compared  they  will  show,  if  care- 
fully compiled,  the  points  of  wasted  time  in  the  ordi- 
nary methods  of  doing  things.  Instruction  cards  can 
then  be  made  out,  with  all  the  time  elements  and  tool 


254  BUSINESS  PEINCIPLES 

conditions  described  as  in  machining  operations. 

It  goes  without  saying  that  the  factors  which 
cause  wasted  time  with  machinists  will  often  be 
found  to  prevail  with  skilled  hand  workmen.  Run- 
ning to  the  suply-room  for  stock  for  a  new  job,  or 
to  the  tool-room  for  tools,  will  eat  up  profits  as  fast 
in  one  department  or  in  one  kind  of  work  as  in 
another. 

In  making  tests,  whether  in  machining  or  other- 
wise, it  is  of  vital  importance  to  surround  the  tester 
with  the  best  possible  conditions.  In  this  connection, 
moreover,  it  must  be  borne  in  mind  that  the  ordinary 
workmen  cannot  be  expected  to  come  up  to  the  mark 
set  for  them  unless  the  same  conditions  prevail  for 
their  operations.  The  importance  of  surrounding  the 
workman  with  all  the  accessories  to  rapid  production 
is  seldom  recognized  in  the  average  shop.  Thus  in 
the  insulating  department  referred  to  above  we  saw 
how  much  time  was  wasted  because  of  piling  stock 
indiscriminately  on  floor  and  benches,  of  leaving  tools 
everywhere  in  general  and  nowhere  in  particular, 
and  other  details  that  kept  the  men  busy  on  unneces- 
sary "fussing  around." 

What  may  be  called  the  small  details  essential  to 
rapid  and  efficient  manufacture  may  be  further  speci- 
fied. First,  it  is  important  that  all  the  stock  and 
parts  shall  come  to  the  tester  and  to  the  workman 
fully  inspected  as  to  the  accuracy  of  previous  opera- 
tions. The  inspection  should,  if  possible,  be  more 
severe  and  thorough  as  the  work  proceeds  through 
the  various  processes  of  manufacture,  for  the  loss 
from  spoiling  a  part  that  is  reaching  its  final  stages 
is  greater  than  if  it  comes  before  much  labor-time 


EXPENSE  OP  WASTED  TIME  255 

has  been  put  into  it.  It  is  in  the  final  assembling 
work,  where  all  the  different  parts  are  fitted  together 
into  the  completed  machine,  that  the  accuracy  or  in- 
accuracy of  previous  operations  will  make  a  vast  dif- 
ference in  the  amount  of  time  and  labor  required. 
Thus,  wherever  possible,  thorough  inspection  should 
provide  for  such  accuracy  of  parts  that  the  assembler 
will  not  find  it  necessary  to  do  any  grinding  or  filing 
in  order  to  make  the  parts  fit  into  each  other.  It 
is  partly  because  such  grinding  and  filing  may  some- 
times be  necessary  and  sometimes  may  not  that  the 
difficulty  arises  of  determining  any  standard  time 
and  conditions  for  such  work.  It  should  be  possible 
by  means  of  tests,  standard  conditions,  instruction 
cards  and  careful  supervision  applied  to  the  earlier 
stages  of  the  work,  to  secure  such  accuracy  of  sizes 
and  shapes  as  to  remove  from  the  final  fitting  to- 
gether any  necessity  for  grinding  and  drilling. 
Where,  however,  absolute  perfection  in  this  work, 
or  such  degree  of  perfection  as  to  answer  all  pur- 
poses, cannot  be  secured,  the  necessary  machinery 
for  doing  such  grinding,  filing  and  drilling  should  be 
placed  within  convenient  reach  of  the  workman. 

All  the  parts  required  for  the  work  should  be  not 
only  placed  within  convenient  reach  of  the  workman, 
but  should  be  arranged  in  logical  order.  This  is 
particularly  important  in  the  work  of  fitting  several 
parts  together,  as  it  saves  time  in  considering  what 
should  come  next.  This  principle  is  an  important 
one,  moreover,  in  facilitating  the  rapid  handling  of 
all  kinds  of  work.  It  should  be  applied  not  only  to 
stock  and  parts,  but  also  to  rivets,  screws  and  tools 
of  every  description.     If  everything  required  for 


256  BUSINESS  PEINCIPLES 

work  is  put  within  easy  reach,  arranged  in  logical 
order,  and  located  in  a  standard  place,  both  the 
temptation  and  the  possibility  of  wasting  time  is  re- 
moved from  the  operator. 

The  most  effective  methods  of  facilitating  the 
handling  of  stock  and  parts  will  require  careful 
adaptation  to  the  nature  of  the  work.  The  putting 
together  of  the  parts  of  a  watch  will  present  entirely 
different  problems  from  those  of  setting  up  a  bicycle, 
and  bicycle  work  will  require  different  treatment 
from  the  assembling  of  an  automobile.  In  the  case  of 
heavy  parts,  a  thorough  system  of  hoists  should  be 
provided.  Where  the  parts  are  light,  particular  at- 
tention to  placing  them  in  convenient  and  logical 
order  will  be  necessary  in  order  to  avoid  waste  of 
time  in  handling,  because,  as  we  have  seen,  handling 
time  is  so  much  the  larger  proportion  of  the  total 
time  where  the  parts  are  small. 

Examples  of  the  tremendous  savings  made 
through  the  standardizing  of  operations  and  the 
elimination  of  factors  causing  wasted  hours  could  be 
multiplied  almost  indefinitely.  Not  long  ago  the  head 
of  an  electrical  manufacturing  concern  became  con- 
vinced that  one  of  his  departments,  where  the  assem- 
bling of  small  dynamos  was  carried  on,  could  be  im- 
proved by  a  change  of  foremanship.  So  he  deposed 
the  former  head  of  this  department  and  put  in  the 
place  a  young  mechanical  engineer  who  had  been 
recommended  to  him  as  a  ** wizard."  In  this  depart- 
ment were  eighty  men,  all  supposed  to  be  skilled 
mechanics,  whose  pay  averaged  $4.00  a  day. 

The  new  foreman  immediately  instituted  a  series 
of  tests,  the  thoroughness  and  accuracy  of  which 


EXPENSE  OF  WASTED  TIME  257 

were,  however,  marred  by  every  kind  of  covert  op- 
position that  the  workmen  could  present.  The  re- 
sults secured,  imperfect  as  they  were,  showed  that 
a  reduction  of  fifty  per  cent  could  easily  be  made  and 
still  provide  the  men  with  a  large  enough  piece  rate 
to  enable  them  to  earn  more  than  they  had  before. 
The  new  system  was  offered  to  the  men,  together 
with  a  guarantee  that  the  rates  offered  would  not  be 
cut  for  a  period  of  two  years.  But  the  new  fore- 
man's efforts  were  not  seconded  by  the  management, 
and  owing  to  friction  from  this  and  other  sources,  the 
dynamo  assemblers  walked  out  in  a  body.  The  new 
foreman  was  in  a  quandary.  He  walked  straight  to 
the  chief  executive's  office,  pointed  out  bluntly  that 
the  policy  of  the  management  in  not  supporting  him 
had  caused  the  trouble,  and  demanded  that  he  be 
allowed  to  remedy  the  situation  without  any  interfer- 
ence whatever.  As  the  chief  executive  was  utterly 
at  sea  himself,  he  was  forced  to  submit. 

The  new  foreman,  instead  of  taking  the  old  men 
back  on  their  terms,  secured  a  group  of  eight  expert 
dynamo  assemblers  from  among  them,  forty  men,  and 
from  an  employment  agency.  These  men  were  in- 
duced to  enter  the  shop  by  a  high  rate  of  pay  by  the 
day.  They  were  absolutely  unskilled  in  the  work, 
being  for  the  most  part  clerks  and  salesmen  who 
knew  nothing  of  assembling  a  dynamo.  The  only  re- 
quirement was  that  they  be  strong,  healthy,  and  in- 
telligent. Each  experienced  assembler  was  then 
placed  in  charge  of  a  group  of  five  of  these  unskilled 
men.  The  experienced  men  were  given  the  instruc- 
tion cards  and  the  time  standard  and  detailed  to  see 
that  the  ''green"  hands  learned  all  the  tricks  of  the 


258  BUSINESS  PEINCIPLES 

trade,  followed  instructions  carefully,  and  gradually 
approximated  the  standard  time  set  for  the  work. 
The  expert  assemblers  were  to  be  rewarded  in  pro- 
portion as  they  secured  the  desired  results  from 
the  men. 

The  officers  of  the  company  looked  with  conster- 
nation and  dismay  upon  this  radical  departure  from 
all  established  practice,  and  it  required  all  the  tact 
and  oratory  of  the  young  foreman  to  persuade  them 
that  he  knew  what  he  was  about.  They  finally  agreed 
to  give  him  a  free  hand  for  two  months,  he  agreeing 
in  that  time  to  bring  the  production  up  to  the  former 
standard  at  no  greater  cost  than  before,  or  step  out. 

The  young  foreman  pushed  his  policy  with  such 
vigor  that  at  the  end  of  four  weeks  he  found  it  pos- 
sible to  put  the  new  men  on  piece  work.  The  elimina- 
tion of  wasteful  methods  and  lost  time  through  the 
use  of  instruction  cards  strictly  followed  out  enabled 
the  green  men  to  equal  and  soon  far  outstrip  the 
former  expert  assemblers.  The  new  piece  work 
prices,  therefore,  were  set  at  about  half  the  old  ones. 
These  rates  were  offered  to  the  men  as  an  option  to 
continuing  on  the  old  day- wage  plan,  and  at  the  same 
time  an  iron-clad  guarantee  was  given  that  the  rates 
would  not  be  cut  for  a  certain  period.  The  men  were 
assured  that  the  company  would  be  glad  to  have  them 
earn  as  high  wages  as  they  could  during  that  period. 
A  simple  calculation  showed  the  men  that  they  could 
earn  more  at  piece  work  than  by  the  day,  and  the 
assurance  of  no  rate-cutting  decided  one  and  all  in 
favor  of  the  new  plan. 

The  management  adhered  to  a  strict  and  rigid 
system  of  inspection  in  regard  to  the  work  of  this 


EXPENSE  OF  WASTED  TIME  259 

department.  As  the  days  and  weeks  went  on  they 
became  more  and  more  astonished  at  the  results.  By 
the  end  of  the  month  the  force  of  forty  was  turning 
out  dynamos  as  rapidly  and  as  well  finished  as  the 
eighty  men  had  done  before  under  the  old  regime. 
At  the  end  of  three  months  the  average  earnings  of 
each  man  was  exceeding  $6.00  a  day  and  steadily 
rising.  At  the  end  of  a  year  the  savings  in  the  pay- 
roll in  this  department  alone  amounted  to  over 
$25,000. 

At  the  last  meeting  of  the  board  of  directors  the 
young  foreman  was  made  an  assistant  superin- 
tendent, and  the  chief  executive's  chair  will  in  all 
probability  be  waiting  for  him  one  of  these  days. 

In  analysis  of  hand-work,  such  as  has  been  de- 
scribed, it  is  seldom  possible  to  secure  the  accurate 
results  that  may  be  derived  from  a  study  of  machin- 
ing operations.  For  this  reason  there  should  be  an 
especial  stimulation  to  the  worker  to  do  his  best. 
Even  on  the  best  analyses  a  workman  will  become 
so  skillful  in  time  on  a  hand-work  job,  as  to  exceed 
by  a  large  margin  the  *' standard  time.''  For  this 
reason  the  workman  should  be  given  a  considerable 
increase  over  his  daily  wage  for  accomplishing  as 
much  or  more  than  the  ** standard,"  and  should  be 
encouraged  in  every  way  to  earn  as  much  as  he  can, 
without  fear  of  cutting  on  the  piece-rate. 

In  concluding  this  subject  attention  should  be 
called  to  the  fact  that  standard  times  and  conditions 
for  machining  and  other  operations  will  sometimes 
be  limited  in  their  application  because  of  lack  of 
proper  equipment  and  lack  of  means  to  secure  it. 
Many  a  manufacturer  is  perfectly  aware  that  his 


260  BUSINESS  PEINCIPLES 

tools  are  partly  second-class  and  partly  third,  that 
his  appliances  are  not  such  as  to  insure  the  maximum 
efficiency,  and  that  his  machines  are  not  of  the  best 
design.  Many  a  manufacturer  is  obliged,  through 
lack  of  ready  cash,  to  ignore  any  scheme  that  involves 
at  the  beginning  a  complete  replacement  of  existing 
tools  and  equipment  with  the  most  modern  types, 
even  though  it  can  be  demonstrated  that  such  a  move 
would  increase  his  output  a  hundred  per  cent.  He 
must  make  good  with  what  he  has;  when  he  is  on 
firm  ground  he  can  consider  high  speed  steel  and 
better  machines. 

To  such  a  man  it  is  a  comforting  fact  that  many 
of  the  factors  of  standard  machining  and  nearly  all 
of  those  that  eliminate  wasted  time  can  be  intro- 
duced to  a  considerable  degree  of  effectiveness  with- 
out serious  change  in  tools  and  machinery.  In  many 
a  plant  the  simple  device  of  stopping  the  practice  of 
letting  the  men  grind  their  own  tools  and  run  to  the 
supply  room  for  stock  will  effect  a  saving  of  thou- 
sands of  dollars.  The  long-headed  manager,  however, 
will  not  lose  sight  of  the  ultimate  goal.  He  will  look 
forward  to  the  time  when  all  the  economies  possible 
may  be  introduced  into  his  working  equipment.  To- 
gether with  reports  of  tests  and  standard  times  on 
his  existing  stock  should  go  a  report  showing  what 
heavier,  stiffer,  and  more  efficient  tjrpe  of  machines 
should  be  substituted  for  those  in  use  when  the 
proper  time  comes.  Second,  he  should  secure  a  re- 
port on  every  machine  tool  in  the  shop,  showing  its 
points  of  weakness  and  its  limitations  as  to  cutting 
speeds  and  feeds  and  depth  of  cut;  how  it  can  be 
changed  for  the  better;  a  description  of  the  kind  of 


EXPENSE  OF  WASTED  TIME  261 

work  that  should  be  done  on  it ;  a  record  of  best  times 
on  jobs;  a  full  statement  of  the  best  machine  tool  to 
substitute  for  it,  and  an  accurate  comparison  of  pos- 
sible production  by  the  use  of  better  equipment. 

In  fact,  unless  data  of  this  kind  are  secured  sys- 
tematically at  the  start,  improvement  will  be  hope- 
lessly retarded;  and  the  manufacturer  will  find  him- 
self burdened,  as  time  goes  on,  with  many  a  newly 
purchased  machine  tool  just  as  weak  and  inefficient 
as  the  old. 


CHAPTER  XI. 
EFFICIENCY  AND  WAGES;  DAY  WORK. 

In  approaching  the  question  of  the  proper  system 
of  pay  for  the  workmen,  there  are  a  number  of  con- 
siderations that  must  be  borne  in  mind  and  carefully 
weighed  before  a  decision  is  reached  in  any  particu- 
lar case.  The  problem  is  such  a  broad  and  difficult 
one,  with  branches  running  out  in  so  many  different 
directions,  and  embracing  so  many  different  prin- 
ciples that  any  attempt  to  solve  it  offhand  is  liable 
on  the  one  hand  to  lead  to  the  adoption  of  a  system 
that  will  involve  excessive  costs  to  the  company, 
and  on  the  other  to  arouse  the  antagonism  of  the 
workmen  and  plunge  the  establishment  into  a  series 
of  costly  labor  troubles. 

In  the  first  place,  no  system  of  paying  wages 
should  be  adopted  that  does  not  keep  in  view  the 
laborer's  side  of  the  case.  The  average  employer 
or  manager  finds  it  hard  to  put  himself  in  the  work- 
man's place;  he  cannot  understand  why  the  work- 
man will  not  listen  to  reason;  he  forgets  that  the 
workman  has  found  out  in  a  thousand  experiences 
that  his  employer  is  a  cleverer  man  than  he  is,  that 
he  will  almost  invariably  take  advantage  of  his  su- 
perior intelligence,  and  that  *' reason"  in  ninety-nine 
cases  out  of  a  hundred  means  ultimate  injustice  to 

263 


264  BUSINESS  PEINCIPLES 

the  man  beneath.  The  employer  does  not  realize 
what  it  means  to  be  tyrannized  over  by  some  narrow- 
minded  foreman  who  holds  his  place,  perchance, 
through  a  ''pull"  with  some  one  higher  up;  who  can 
make  the  conditions  of  one-third  or  more  of  his  exist- 
ence hard  or  easy  at  will;  who  can  make  the  daily 
earnings,  the  only  means  of  livelihood,  large  or  small; 
who  can  apportion  the  work  fairly  or  unfairly;  who 
regards  the  interests  of  the  workmen  and  his  em- 
ployers as  diametrically  opposed,  and  who  ranges 
himself  on  the  side  of  the  stronger. 

The  workman's  horizon  is  bounded  by  the  nar- 
row limits  of  his  daily  work  and  the  unhappy  ex- 
periences of  himself  and  his  fellows.  To  him  a  cut 
in  piece  rates  means  only  that  the  management  has 
cast  envious  eyes  upon  his  daily  pittance,  and  means 
to  secure,  by  the  power  of  tyranny,  a  larger  share  of 
what  he  is  earning.  To  him,  working  slowly  has 
been  made  to  appear  a  virtue  and  working  rapidly  a 
traitorous  betraj^al  of  his  own  and  his  fellow  work- 
man's interests.  He  is  possessed  of  a  firm  idea  that 
the  less  work  he  does  the  more  work  there  will  be 
to  go  around,  and  regards  it  as  a  desirable  accom- 
plishment if  work  can  be  so  dilatorily  performed 
that  ten  men  will  have  to  be  hired  to  do  what  five 
could  easily  finish.  For  these  causes,  opposition  may 
reasonably  be  expected  from  a  body  of  workmen 
whenever  a  new  system  is  to  be  adopted,  no  matter 
what  the  system  or  what  advantages  it  offers  to  the 
laborers.  Mankind  in  general  and  workmen  in  par- 
ticular are  extremely  suspicious  of  proposals  of  new 
things,  the  more  so  when  they  come  from  a  superior 
power.    In  general  it  may  be  said  that  changes  in 


EFFICIENCY  AND  WAGES  265 

the  methods  of  work  and  in  the  methods  of  pay 
should  not  be  forced.  They  should,  wherever  pos- 
sible, be  offered  as  an  option,  to  be  taken  or  left  alone 
as  the  workman  pleases.  Note  that  this  method  can- 
not be  followed  in  the  ordinary  cutting  of  a  piece-rate 
price  on  work.  Sometimes  it  may  prove  advisable  to 
put  a  single  workman  on  the  new  system,  let  him 
prove  conclusively  that  he  can  earn  more  on  that 
basis,  and  make  no  attempt  to  persuade  the  other 
men  to  adopt  the  plan.  If  the  system  is  really  to 
the  workman's  benefit,  in  time  they  will  come  of  their 
own  accord  and  ask  to  be  put  on  the  new  basis.  In 
any  event,  the  employer  that  wishes  to  avoid  trouble 
must  abundantly  prove  that  he  is  acting  **on  the 
square." 

A  second  consideration,  closely  connected  with 
the  first,  concerns  the  danger  of  introducing  changes 
too  radical  in  their  nature.  The  system  that  is  theo- 
retically ideal  for  plain  and  simple  kinds  of  work 
may  be  totally  impractical  for  particular  kinds  of 
work.  The  best  method  of  pay  will  often  have  a 
close  relation  to  the  character  of  the  business  and 
the  method  of  pay  already  in  use.  No  preconceived 
plan  of  any  character  can  be  introduced  into  a  busi- 
ness organization  or  system  if  it  involves  tearing 
down  existing  systems  that  have  become  part  and 
parcel  of  the  establishment's  very  existence.  Even 
the  system  that  will  be  the  best  for  the  organization 
in  the  long  run  may  be  so  different  from  the  poor 
one  at  present  in  use  that  the  long  leap  may  not  be 
taken  in  safety.  The  delicate  period  of  transition 
may  be  bridged  by  introducing  small  modifications 
here  and  there,  each  closely  related  to  the  preceding 


266  BUSINESS  PKINCIPLES 

system,  each  introducing  some  element  of  betterment 
in  the  worker's  condition,  and  each  inspiring  that 
confidence  in  the  management  that  will  enable  it  to 
reach  the  ultimate  goal. 

Each  step  should  be  taken  definitely,  and  once 
taken  should  be  adhered  to.  There  must  be  no 
retrogression.  But  each  step  should  be  taken  with 
the  idea  in  mind  that  the  old  methods  almost  in- 
variably possess  a  momentinn  that  cannot  safely  be 
overcome  by  building  a  brick  wall  across  the  track. 
The  modern  organizer  who  enters  a  shop,  upsets  the 
existing  methods  and  puts  in  his  own  ideally  per- 
fect theories,  finds  that  in  actual  practice  the  organi- 
zation will  either  go  to  pieces  entirely,  or  after  a 
period  of  turmoil  and  hurly-burly  will  go  back  to 
the  grand  old  system,  devised  by  men  who  knew  the 
establishment's  necessities  from  long  and  trying  ex- 
perience. He  who  would  succeed  must  combine 
theory  with  the  lessons  learned  of  experience.  He 
must  consider  carefully  the  character  of  the  work, 
the  thoughts  and  feelings  of  the  members  of  the 
organization,  the  ability  of  the  foremen  and  work- 
men, and  the  methods  already  in  use.  He  must  gain 
the  intelligent  support  of  the  men  by  adapting  the 
new  methods  to  the  old  and  so  progress  toward  the 
goal  that  means  highest  wages  to  the  men,  combined 
with  greatest  profit  to  the  management. 

The  third,  and  perhaps  most  important,  consid- 
eration of  all  to  be  kept  in  mind  in  determining  the 
system  of  paying  wages,  explains  in  part  how  this 
can  be  possible.  Few  manufacturers  realize  how 
small  a  part  of  total  cost  of  production  is  the  money 
paid  out  for  labor.    A  largely  increased  production 


EFFICIENCY  AND  WAGES  267 

brought  about  with  the  same  machines  and  equip- 
ment, with  the  same  expense  for  heat,  light,  and  up- 
keep, means  a  greatly  lowered  cost  through  the  pro- 
portional decrease  of  the  indirect  cost  per  unit  of 
product.  This  is  often  called  the  ** overhead  cost" 
or  the  ** burden."  Faster  production  means  that  the 
investment  in  plant  and  machinery  is  bringing 
quicker  dividends;  it  means  a  quicker  movement  of 
stock  and  thus  a  reduction  of  investment  in  stock 
through  more  rapid  turn  over.  It  means  quicker 
deliveries  and  saving  of  losses  from  unfulfilled  con- 
tracts— and  greater  satisfaction  to  customers.  In- 
crease of  production  also  means  an  increase  of  sales 
with  a  decrease  in  the  cost  of  selling  each  unit  of 
product.  Most  manufacturers  regard  excessive  costs 
of  production  as  an  evil  that  can  be  attacked  only  by 
lowering  wages  or  cutting  piece  rates.  Either  plan 
carries  with  it  dissatisfaction  on  the  part  of  the 
workmen  and  more  systematic  eiforts  on  their  part 
to  *'stop  rate-cutting  if  soldiering  can  do  it."  In 
fact,  rate-cutting  of  any  kind,  even  when  it  seems 
most  necessary,  is  almost  invariably  a  bad  policy,  as 
it  involves  in  a  measure,  a  breach  of  contract  on  the 
part  of  the  management.  The  same  results,  and 
usually  far  better  results,  in  lowering  cost  can  be 
secured  by  lowering  the  *' overhead"  costs,  making 
a  quicker  turn-over  of  the  working  capital  invested. 
This  can  be  brought  about  by  stimulating  the  work- 
men to  larger  production  by  a  correct  system  of  pay. 
Larger  wages,  if  they  bring  about  the  proper  results, 
are  not  so  much  to  be  feared  as  antagonism  on  the 
part  of  the  workmen,  idle  machines,  slow-moving 
stock,  and  an  increase  in  the  indirect  cost  per  article. 


268  BUSINESS  PKINCIPLES 

A  fourth  consideration  to  be  borne  in  mind  in  de- 
termining on  a  system  of  pajdng  wages  relates  di- 
rectly to  the  computation  of  labor  costs  of  produc- 
tion. When  all  the  work  to  be  done  on  an  article  is 
paid  for  on  a  per  diem  basis  there  is  no  way  of  telling 
exactly  how  much  it  has  cost  in  labor  after  it  has 
been  finished,  although  carefully  kept  records  may 
furnish  an  approximation.  Nor  can  any  estimate 
beyond  a  hazy  guess  be  hazarded  as  to  what  it  will 
cost  to  finish  an  article  before  it  has  been  manufac- 
tured. One  advantage  of  payment  for  work  by  the 
piece  lies  in  the  fact  that  the  labor  cost  can  be  ex- 
actly figured  out,  although  the  rapidity  with  which 
the  processes  have  been  carried  on  will  produce  con- 
siderable variation  in  the  indirect  or  overhead 
charges.  Any  system  of  pay  that  does  not  attempt 
to  make  the  laborer's  recompense  directly  commen- 
surate with  his  output  prohibits  any  established 
labor  cost  on  the  product,  as  it  is  subject  to  variation 
in  accordance  with  the  honesty  and  skill  of  the 
workmen. 

Keeping  these  four  considerations  in  mind  then, 
let  us  examine  the  systems  of  pay  in  common  use. 
Our  interest  in  the  advantages  and  disadvantages 
of  each  will  center  particularly  on  their  influence  in 
bringing  about  economies  of  production  and  satis- 
faction to  employer  and  employe. 

The  oldest  and  most  general  method  of  pajdng 
wages  is  known  as  day  work  or  time  wage.  Under 
this  method  the  laborer  is  simply  paid  so  much  per 
day,  no  stipulations  being  made-  ordinarily  as  to  the 
precise  amount  of  work  he  shall  turn  out.  To  dis- 
cover the  merits  and  demerits  of  this  method,  we 


EFFICIENCY  AND  WAGES  269 

must  consider  what  influences  bear  upon  the  work- 
man to  induce  him  to  put  forth  his  best  efforts,  and 
what  influences  tend  to  make  him  ''soldier,''  to  shirk 
his  work,  to  reduce  his  output,  in  a  word,  to  increase 
the  costs  of  production. 

1.  There  is  no  question  that  it  is  the  natural 
tendency  of  man  in  all  walks  of  life  to  save  himself 
as  much  trouble  and  toil  as  is  possible.  It  is  a  natu- 
ral instinct  that  prompts  men  to  ''take  it  easy." 
This  is  a  factor  that  has  to  be  fought  against  in  all 
kinds  of  work,  no  matter  what  the  system  of  pay. 
Unless  there  is  some  special  inducement  in  the  way 
of  greater  rewards  for  greater  efforts,  or  unless  a 
man  is  particularly  honest  in  his  realization  of  his 
duty  to  his  employer  or  takes  an  extraordinary  pride 
in  his  work,  the  tendency  to  work  at  a  slow  and  easy 
gait  is  overpowering.  There  are,  of  course,  men  of 
unusual  energy  and  vitality  who  naturally  choose  a 
fast  gait  and  who  wiU  work  hard  even  when  they 
think  it  contrary  to  their  own  best  interest.  These 
men  are  rare,  and  serve  only  by  contrast  to  show  how 
strong  are  the  opposite  tendencies  in  the  vast  ma- 
jority of  mankind.  It  is  noticeable,  too,  that  these 
tendencies  are  strongest  in  the  lowest  grades  of 
labor.  As  we  go  up  the  scale  we  find  workmen  of 
larger  mental  calibre  and  with  a  broader  outlook  on 
life  and  its  opportunities,  who  take  a  pride  in  their 
work  and  who  see  more  clearly  the  distant  reward 
which  comes  to  him  who  does  his  best.  The  ordi- 
nary workman  does  not  devote  much  thought  or 
observation  in  respect  to  advantages  that  may  accrue 
to  him  on  some  far-off  day  when  promotion  or  the 
respect  and  confidence  of  his  employers  shall  reward 


270  BUSINESS  PRINCIPLES 

him  for  tasks  well  done.  It  is  as  a  rule  only  as  a 
result  of  example  or  direct  external  stimulus  that 
he  will  take  a  more  rapid  pace. 

While  the  tendency  to  go  slow  is  the  result  of  a 
natural  instinct  and  hence  appears  in  all  kinds  of 
work,  it  is  particularly  to  be  noted  on  day  work, 
because  of  the  fact  that  the  amount  of  work  done  is 
not  checked  up.  There  is  in  this  case  no  definite 
limit  within  which  the  tendency  to  idle  must  restrict 
itself. 

2.  In  day  work,  the  laborer  has  no  direct  interest 
in  any  increased  production  which  he  may  bring 
about  through  more  intelligent  or  increased  produc- 
tion. The  benefits  of  such  increase  go  wholly  to  the 
employer.  Thus  the  stimulus  that  might  induce  him 
to  overcome  his  natural  tendency  to  idleness  and  to 
quicken  his  pace  is  lacking.  Where,  as  is  too  often 
the  case,  the  workman  has  been  made  to  feel  that 
his  own  and  his  employer's  interests  are  directly 
opposed,  workmen  frequently  take  a  pride  in  seeing 
how  little  they  can  do  without  being  found  out.  The 
writer  has  seen  a  workman,  after  an  altercation  with 
a  foreman,  deliberately  set  a  number  of  rivets  of  the 
wrong  size  in  a  piece  of  work,  and  when  they  were 
all  in,  as  deliberately  pound  them  out  again.  This 
would  not  have  been  possible  if  he  had  been  properly 
supervised,  but  it  illustrates  the  point. 

3.  Where  a  number  of  men  are  engaged  on 
similar  work  side  by  side  and  paid  at  a  uniform  rate 
by  the  day,  the  efforts  of  the  better  men  are  para- 
lyzed by  the  example  of  the  laziest  among  them.  No 
man  likes  to  feel  that  he  is  making  a  worse  bargain 
than  somebody  else.  The  workman  has  made  a  bar- 


EFFICIENCY  AND  WAGES  271 

gain,  exchanging  his  labor  for  money;  if  the  amount 
of  money  paid  to  a  group  of  workmen  is  the  same,  he 
apparently  makes  the  better  bargain  who  gives  the 
least  of  toil  and  effort  in  exchange.  The  tendency  of 
example  will  always  take  the  line  of  least  resistance, 
and  when  a  number  of  men  are  working  together  the 
average  output  will  more  or  less  gradually  come  to 
conform  to  that  of  the  poorest  and  least  efficient. 

4.  Another  influence  tending  to  lower  output 
comes  from  a  careful  study  on  the  part  of  the  work- 
men as  to  what  will  promote  their  best  interests. 
Practically  all  employers  determine  upon  some  defi- 
nite sum  which  they  think  each  of  their  classes  of 
employes  should  earn  per  day,  usually  without  any 
regard  for  the  amount  of  work  they  do.  Cut  off  by 
this  unfortunate  practice  from  hope  of  greater  re- 
ward for  increased  production,  the  workman  feels 
that  he  can  gain  only  by  keeping  down  his  output  to 
the  lowest  plausible  amount,  and  convincing  his  em- 
ployer that  this  amount  represents  the  maximum 
output  possible.  Experiences  innumerable  have 
grmly  fixed  in  the  workmen's  minds  the  conviction 
that  it  is  imperative  to  keep  their  employers  ignorant 
of  how  fast  work  can  be  done.  They  have  learned  in 
a  hard  school  that  once  an  employer  discovers  that 
a  man  can  do  more  work  than  he  has  done,  the  em- 
ployer will  sooner  or  later  compel  him  to  do  it  with 
little  or  no  increase  of  pay. 

5.  Firmly  fixed  in  most  workmen's  minds  is  the 
conviction  that  there  is  just  so  much  work  to  be 
done,  and  that  this  amount  of  work  will  be  done  no 
matter  how  much  has  to  be  paid  for  it.  Therefore, 
the  less  each  man  does  the  more  work  there  will  be 


272  BUSINESS  PRINCIPLES 

for  somebody  else.  That  this  conviction  has  a  pow- 
erful tendency  to  restrict  output,  especially  in  the 
strongly  organized  trades,  there  can  be  no  doubt. 
We  have  no  space  here  to  enter  into  the  arguments 
that  refute  the  ''Lump  of  Labor"  theory;  it  is  men- 
tioned only  as  a  factor  that  makes  many  men  feel 
that  if  they  were  to  do  twice  as  much  work  as  they 
are  doing  now  they  would  take  some  other  man's  job 
away  from  him. 

Many  of  these  influences  that  tell  against  the 
efficiency  of  workmen  employed  on  day  work  will  be 
found  to  hold  with  other  methods  of  pay,  while  many 
of  them  can  be  eliminated.  Where  they  can  be  elimi- 
nated, of  course,  it  is  advisable  to  do  so.  But  the  day 
work  plan,  while  it  is  the  most  loose  and  most  faulty 
of  all  systems,  is  at  the  same  time  the  most  flexible. 
That  is,  it  can  be  applied  to  work  of  every  descrip- 
tion, while  the  other  methods  are  more  or  less  re- 
stricted in  their  application.  There  are  certain  kinds 
of  work  in  which,  faulty  as  it  is,  the  day  work  system 
is  best. 

1.  In  many  manufacturing  operations,  the  most 
scrupulous  perfection  of  work  is  of  paramount  im- 
portance. There  are  operations  in  which  one  piece 
turned  out  perfectly  would  be  of  more  value  than 
fifty  done  fairly  well;  where  a  maladjustment  to  the 
extent  of  a  hundredth  of  an  inch  would  bring  irrepar- 
able damage  to  the  whole  article.  This  is  the  case  in 
work  on  fine  optical  instruments,  watches,  finely 
graduated  scientific  appliances,  and  the  like.  In 
work  of  this  nature  it  is  easily  seen  that  it  would  be 
unwise  to  furnish  the  workman  with  the  slightest 
stimulus  to  hurry  through  his  work  or  increase  his 


EFFICIENCY  AND  WAGES  273 

output.  Inspection  so  minute  as  to  guarantee  abso- 
lute perfection  in  most  cases  of  this  kind  would  be 
impossible.  Even  if  it  were  possible,  a  faulty  adjust- 
ment once  made  will  often  be  impossible  to  repair. 

With  operations  of  this  nature,  however,  it  should 
be  noted  that  there  is  little  danger  that  the  employer 
will  suffer  from  an  undue  restriction  of  output.  The 
highly  paid  specialists  who  must  be  employed  on 
such  delicate  tasks  are  not  under  the  usual  incentives 
to  soldier.  Their  intelligence,  their  broader  outlook 
on  life  and  its  opportunities,  and  their  pride  in  good 
workmanship  will  spur  them  on  to  their  best  efforts. 

2.  Another  kind  of  work  not  easily  susceptible 
to  pressure  for  a  larger  output  is  to  be  found  in  cases 
where  several  different  operations  have  to  be  per- 
formed by  different  men  before  the  quality  of  the 
work  can  be  inspected,  or  where  several  men  work 
simultaneously  on  the  same  job.  If  haste  is  liable, 
as  it  is  in  most  instances,  to  mar  the  perfection  of  the 
operations  performed,  it  is  essential  that  there  be 
some  definite  individual  on  whom  the  blame  rests. 
Otherwise  A  will  transfer  the  responsibility  to  B  and 
B  to  C,  and  we  should  need  a  perpetual  court  of  in- 
quiry to  settle  the  disputes  that  would  inevitably 
arise. 

At  the  same  time,  a  note  of  warning  should  be 
sounded  as  to  the  too  ready  application  of  this  prin- 
ciple. An  expert  organizer,  going  through  the  va- 
rious manufacturing  divisions  of  a  run-down  concern 
with  a  view  to  the  substitution  of  piece-work  for  day- 
work,  came  to  one  department  where  rough  metal 
plates  were  smoothed  and  polished  off  in  preparation 
for  further  machining.    The  men  engaged  on  this  job 


874  BUSINESS  PEINCIPLES 

were  paid  by  the  day,  and  an  examination  of  the  rec- 
ords showed  that  the  output  was  lamentably  small. 
The  foreman  of  the  department  was  asked  why  this 
work  was  not  done  by  the  piece.  He  replied  that  the 
plates  passed  through  the  hands  of  six  different  sets 
of  men;  that  they  had  formerly  been  paid  by  the 
piece,  but  that  when  inspection  showed  faulty  work- 
manship each  laborer  passed  the  responsibility  on  to 
someone  else,  so  that  in  order  to  insure  good  quality 
they  had  been  obliged  to  pay  the  men  by  the  day. 
The  organizer  thereupon  put  the  men  back  on  piece- 
work and  appointed  a  separate  inspector  over  each  of 
the  six  groups  of  workmen  to  examine  minutely  the 
quality  at  each  stage  of  the  work.  The  output  of 
that  department  doubled  in  a  short  time.  The 
trouble  was  that  inspection,  instead  of  being  applied 
where  responsibility  could  be  definitely  fixed,  had 
come  only  at  the  end  of  the  series  of  operations. 

3.  In  some  cases  where  very  delicate  and  val- 
uable machinery  may  be  strained  or  injured  by  too 
much  haste,  it  is  unwise  to  give  the  workman  too 
strong  a  motive  to  increase  his  production.  Some 
manufacturers,  following  this  principle,  have  even 
gone  to  the  extent  of  actually  limiting  the  output, 
setting  a  maximum  which  must  not  be  exceeded  in  a 
day.  The  true  solution  of  a  problem  of  this  kind  lies 
in  finding  the  standard  time  for  machining,  and  set- 
ting down  on  an  instruction  card  the  highest  speed 
and  power  that  experiment  has  proved  to  be  safe. 
Workmen  who  can  be  trusted  with  very  delicate  in- 
struments are  liable  to  be  highly  skilled  and  highly 
paid  specialists,  who  can  safely  be  trusted  to  do  their 
best  even  though  paid  by  the  day. 


EFFICIENCY  AND  WAGES  275 

4.  The  most  general  condition  under  which  day- 
work  is  to  be  preferred  to  any  other  system,  and 
which  presents  the  most  knotty  problems  in  devising 
means  to  prevent  restriction  of  output,  is  seen  where 
the  work  is  of  such  a  miscellaneous  character  that  it 
is  impossible  to  measure  it.  In  every  establishment 
there  is  work  to  be  done  that  cannot  be  weighed, 
computed  or  counted,  either  because  the  results  do 
not  appear  in  units  of  concrete  form,  or  because  the 
time  required  to  do  each  task  may  vary  considerably 
and  in  an  indeterminable  amount  each  day.  Here 
indeed  is  a  rich  field  for  the  exercise  of  the  idler's 
special  function!  Here  there  is  no  way  of  catching 
a  man  **off  his  job'*  unless  he  sits  down  to  rest  or 
stands  with  his  hands  in  his  pocket.  Illustrations 
of  work  of  this  character  are  innumerable;  in  most 
establishments,  in  fact,  a  majority  of  the  tasks  are 
paid  for  by  the  day  because  they  are  supposed  to 
come  into  this  class.  Yet  in  thousands  of  instances 
such  work  could  be  reduced  to  definite  form  and 
easily  measured,  so  that  records  could  be  kept  of 
the  amount  of  work  each  man  is  doing  and  payment 
made  in  proportion  to  services  performed. 

On  repair  work  for  example,  it  is  generally  con- 
sidered impossible  to  set  a  task  or  pay  by  the  job  be- 
cause each  article  is  liable  to  be  damaged  to  a 
different  extent  in  a  different  way.  Yet  payment  by 
the  piece  on  repairing  has  often  been  applied  with 
entire  success  under  favorable  conditions.  The  elec- 
trical concern  before  mentioned  receives  daily  a  large 
number  of  coils  which  have  burned  through.  The 
repairing  of  a  coil  defective  from  this  cause  involves 


276  BUSINESS  PEINCIPLES 

a  fairly  uniform  amount  of  work  and  is  paid  for  by 
the  piece. 

Clerical  work  is  often  miscellaneous  in  its  char- 
acter and  the  amount  to  be  done  each  day  almost 
always  varies.  Yet  the  work  of  making  out  bills, 
form  cards  and  the  like  can  often  be  measured  and 
paid  for  on  the  basis  of  amount  of  labor  done.  The 
amount  of  work  on  each  bill,  for  example,  will  vary 
considerably,  but  the  labor  of  getting  out  any  twenty 
bills  will  not  differ  appreciably  in  amount  from  that 
on  any  other  twenty.  So  it  often  is  with  repair  work. 
One  pair  of  shoes  may  need  new  soles,  another  is 
down  at  the  heels,  another  requires  a  patch;  but  one 
man  who  has  repaired  fifty  pairs  of  shoes  taken  at 
random  in  this  way  will  have  done  almost  exactly  the 
same  amount  of  work  as  another  who  has  repaired 
fifty  others.  If  now  we  assume  a  repairing  estab- 
lishment so  large  that  one  man  can  be  given  the  soles, 
another  the  heels,  and  another  the  patches,  the  meas- 
uring of  the  work  becomes  an  even  simpler  matter. 

Even  work  that  is  essentially  mental  in  its  char- 
acter can  often  be  measured  and  given  out  in  definite 
amounts.  The  adding  up  of  columns  of  figures  may 
generally  be  reduced  to  some  determinate  amount  of 
work,  particularly  in  an  establishment  where  the 
clerical  work  averages  about  the  same  from  day  to 
day.  Entries  in  day  books,  ledgers,  and  so  on,  when 
there  is  enough  of  such  work,  can  often  be  paid  for  at 
so  much  per  entry. 

There  is  absolutely  no  kind  of  work,  however 
miscellaneous  its  character,  that  cannot  be  described 
in  terms  of  some  kind.  Work  of  every  kind,  too,  may 
be  and  should  be  inspected  and  accurate  definite  rec- 


EFFICIENCY  AND  WAGES  377 

ords  should  be  kept  showing  how  much  and  what  has 
been  done.  The  fact  that  the  management  has  on 
file  a  set  of  cards  showing  the  performance  of  the 
workman  for  every  day  will  prove  a  wonderful  stimu- 
lus in  preventing  a  man  from  trying  to  conceal  the 
fact  that  his  bustling  around  is  leading  to  no  results. 
5.  In  rare  instances  it  will  be  necessary  to  pay 
workmen  by  the  day  because  they  are  kept  invol- 
untarily idle  a  part  of  the  time.  Thus  a  force  of  dock 
hands  who  are  employed  in  removing  wares  from 
ships  as  they  come  to  the  dock  may  have  to  wait 
while  one  ship  is  going  out  and  another  coming  in. 
The  boats  may  arrive  at  irregular  intervals,  or  take 
a  shorter  or  longer  time  in  coming  to  rest  and  putting 
out.  This  is  perhaps  not  a  good  example,  for  it  is 
difficult  to  pay  goods  porters  by  the  piece  unless  the 
cargoes  are  uniform,  but  it  furnishes  a  simple  illus- 
tration. In  many  instances  of  work  of  this  nature 
it  has  been  found  good  policy  to  pay  workmen  by  the 
hour  while  they  were  waiting  or  being  employed  on 
other  than  their  regular  occupation,  and  then  to  put 
them  on  a  piece  rate  of  some  kind  as  soon  as  their 
regular  tasks  were  ready  for  them.  In  the  textile 
industries  the  machine  operators  often  have  to  wait 
while  a  different  group  of  workmen  set  the  pieces  in 
the  machines,  during  which  time  they  are  paid  by 
the  hour  in  order  to  avoid  the  injustice  of  making 
them  spend  part  of  their  working  hours  without  pay 
through  no  fault  of  their  own.  In  modern  estab- 
lishments a  great  deal  of  attention  has  been  devoted 
to  the  problem  of  eliminating  time  wasted  from  this 
cause.  Wherever  the  expense  is  not  too  great  a  few 
extra  machines  are  provided  so  that  the  work  of 


278  BUSINESS  PRINCIPLES 

setting  up  can  go  on  on  some  machines  simultan- 
eously with  the  running  of  the  others.  A  careful 
adjustment  of  this  kind  avoids  wasted  time  both  on 
the  part  of  the  regular  operators  and  of  those  who 
set  the  pattern  cards  and  shuttles.  All  that  has  been 
said  in  the  previous  chapter  in  regard  to  the  expense 
of  wasted  time  will  apply  in  this  case.  It  cannot  be 
denied,  however,  that  there  are  many  instances 
where  conditions  of  a  peculiar  nature  have  prevented 
any  solution  of  the  problem,  and  where,  in  justice  to 
the  workmen,  payment  by  the  day  or  by  the  hour 
seems  unavoidable. 

6.  Suppose  in  a  factory  it  suddenly  becomes 
necessary  to  employ  a  number  of  new  and  untried 
workmen  on  a  job  with  which  they  are  unfamiliar. 
It  would  obviously  be  unfair  to  start  them  on  piece- 
rates.  They  could  not  reasonably  be  expected  to 
start  out  in  the  beginning  at  a  rate  of  speed  any- 
where near  that  which  a  few  weeks  of  experience 
would  enable  them  to  attain.  A  rate  of  pay  by  the 
piece  that  would  enable  them  to  earn  fair  wages  at 
the  start  would  have  to  be  so  high  as  to  cost  the  man- 
agement an  excessive  amount  for  the  work.  A  rate 
on  which  they  could  earn  fair  or  even  high  pay  in 
the  end  would  bring  them  for  a  considerable  period, 
while  they  were  acquiring  skill  at  their  tasks,  a  mere 
pittance.  In  the  latter  case  the  workmen  could  not 
be  induced,  in  all  probability,  to  take  the  work.  In 
the  former  case  the  management,  to  protect  itself 
from  excessive  cost  of  production,  would  be  com- 
pelled to  make  a  series  of  cuts  in  the  piece  rates,  with 
all  the  consequences  of  dissatisfaction  on  the  part  of 
the  men,  suspicion  of  unfairness  in  cutting  down  the 


EFFICIENCY  AND  WAGES  379 

workmen's  pay,  and  temptation  to  soldiering  in  order 
to  prevent  further  cuts.  It  is  obvious  that  the  only- 
fair  and  satisfactory  method  of  pay  imder  these  cir- 
cumstances is  on  a  day  basis. 

Even  then  the  most  careful  measures  will  have  to 
be  taken  to  prevent  soldiering,  for  if  the  workmen 
know  that  payment  by  the  piece  is  ultimately  to  be 
established,  they  will  do  their  utmost  to  prevent 
making  a  high  record,  so  that  the  price,  when  fixed, 
will  be  a  large  one.  The  strictest  supervision  will 
not  secure  from  the  workmen,  imbued  as  they  are 
with  the  importance  of  going  slowly,  the  lowest  time 
in  which  a  job  can  be  done.  The  only  remedy  for 
this  state  of  affairs  is,  in  the  case  of  machine  work, 
a  careful  study  of  standard  times  for  machining,  and 
in  the  case  of  other  kinds  of  work,  the  establishment 
of  the  lowest  times  for  the  job  by  a  study  of  unit 
times,  elsewhere  described.  It  is  obvious,  however, 
that  whatever  may  be  the  policy  of  the  management 
in  regard  to  securing  ultimately  a  low  labor  cost  of 
production,  there  is  a  period  during  which  new  work 
should  be  paid  for  by  the  day. 

The  six  sections  listed  above  give  in  a  fairly  com- 
prehensive way  the  conditions  under  which  it  will  be 
found  advisable  to  pay  for  labor  on  a  time  basis.  We 
have  seen,  however,  that  there  are  special  incentives 
to  idleness  or  ''marking  time"  when  the  workmen 
are  paid  on  this  basis.  To  recapitulate  briefly  these 
incentives  are:  1.  The  natural  tendency  of  man- 
kind in  all  walks  of  life  to  ''take  it  easy."  2.  The 
fact  that  extra  efforts  to  increase  the  output  accrue 
to  the  benefit  of  the  employer,  not  to  the  employe. 
3.    When    men    are    working    together,    he    who 


280  BUSINESS  PEINCIPLES 

does  the  most  seems  to  be  making  a  bad  bargain  in 
giving  more  for  his  wages  than  his  fellows.  3.  The 
fear  of  giving  the  employer  a  definite  basis  for  de- 
manding permanently  and  from  all  the  men  a  high 
output  if  he  learns  how  fast  work  really  can  be  done. 
4.  The  conviction  that  he  who  does  more  than  is 
necessary  is  taking  some  other  man's  work  away 
from  him,  due  to  the  prevalence  of  the  Lump  of  La- 
bor theory. 

It  may  not  be  amiss  to  give  at  this  point  a 
brief  description  of  some  of  the  methods  that  may 
be  employed,  even  where  payment  by  the  day  is  ne- 
cessary, to  stimulate  a  large  output,  even  though  in 
doing  so  it  will  be  necessary  to  review  some  prin- 
ciples already  touched  upon  and  to  anticipate  in  part 
other  principles  that  will  call  for  fuller  consideration 
later. 

1.  First  of  all  should  come  the  matter  of  inspec- 
tion and  office  records  of  daily  performance  of  work. 
When  the  work  is  carefully  inspected  each  day  and  a 
report  of  it  is  sent  into  the  office,  something  definite 
is  done  that  the  most  careless  workman  cannot  get 
away  from.  The  inspector  should  fill  out  a  printed 
card  every  day,  stating  that  he  has  looked  over  the 
work  done  by  such  a  man,  enumerating  in  detail  just 
what  has  been  done,  whether  each  task  was  per- 
formed satisfactorily  or  not,  and  any  special  item 
deserving  of  comment  that  has  come  under  his  ob- 
servation. Illustration  will  show  a  form  card  for 
inspection  of  day  work: 


EFFICIENCY  AND  WAGES  281 


Day  Work  Inspection, 
JOHN  SMITH  AND  COMPANY. 

Department.  Workman 's  Name 

Good         Fair        Poor 
Sweeping  floors,  Boom  K  ....  ....  .... 

Cleaning  windows,  Boom  K  ....         ....         

Cleaning  benches,  Boom  K  ....         ....  .... 

Bemoving  dust  and  oil  from 

machines,  Boom  K  ....  ....         .... 

Bemoving  ashes.  Boom  L  ....  ....  .... 

The  following  items  unsatisfactory 


Remarks 

Signed. 


2.  There  should  be  some  definite  means  of  letting 
interest  in  the  good  or  ill  performance  of  his  duties 
the  workman  know  that  the  management  takes  an 
in  such  a  manner  as  will  directly  affect  his  interests. 
In  one  establishment  where  the  system  of  inspection 
and  records  were  carefully  kept  up,  red  credit  cards 
were  issued  every  week  to  those  workmen  who  had 
"perfect  scores."  Every  man  who  could  present  ten 
credit  cards  in  his  own  name  was  entitled  to  an  in- 
crease of  50  cents  a  week  in  his  pay  envelope.  The 
issuance  of  the  credit  cards  alone  effected  an  entire 
change  in  the  mental  attitude  of  the  men  toward 
their  work.  Whereas  before  they  had  been  moved 
only  by  a  desire  to  get  through  their  tasks  as  easily 
and  with  as  little  effort  as  possible  and  to  avoid  set- 
ting a  high  record,  the  credit  cards  appealed  to  them 
as  a  badge  or  medal  for  good  workmanship.  He  who 
did  not  receive  one  was  in  a  measure  disgraced  before 
his  fellows;  he  who  did  proudly  displayed  it  before 
the  others.  The  approach  of  Saturday  afternoon, 
when  the  cards  were  distributed,  was  awaited  with 
impatience.  It  was  a  sort  of  a  lottery  in  which  the 
more  efficient  drew  prizes.    All  the  old  feeling  that 


2813  BUSINESS  PRINCIPLES 

he  who  did  his  best  was  making  a  poor  bargain  with 
the  employer,  was  swallowed  up  in  the  man's  pride 
in  good  workmanship;  for  no  man  cares  to  be  defi- 
nitely shown  up  as  a  poorer  or  more  inefficient  work- 
man than  the  man  next  to  him.  In  addition  to  the 
reward  of  merit,  there  was  also  the  more  material 
advantage  of  an  increase  of  pay  for  the  possession 
of  ten  of  the  credit  cards. 

In  the  establishment  of  which  we  are  speaking 
each  addition  to  the  pay  was  accompanied  by  a  slight 
increase  in  the  duties  the  man  was  to  perform,  this 
being  understood  as  a  promotion  for  good  workman- 
ship and  as  a  step  toward  an  elevation  to  a  more 
responsible  and  better-paid  position.  The  men  were 
started  at  ten  dollars  a  week;  when  by  the  credit  card 
system  their  earnings  had  reached  fifteen  dollars  the 
increases  were  stopped,  but  they  were  candidates  for 
promotion  to  another  department  at  higher  pay  as 
fast  as  openings  presented  themselves.  Naturally 
imder  such  a  system  the  workmen  strained  every 
nerve  to  get  into  the  fifteen-dollar  class.  After  they 
had  attained  this  distinction,  even  if  not  promoted 
at  once,  they  were  extremely  careful  not  to  jeopar- 
dize their  chances  of  advancement  by  any  falling  off 
in  the  work.  Those  who  failed  to  make  headway 
after  a  certain  time  were  discharged,  not  because 
the  management  had  any  grudge  against  them,  but 
because  they  had  failed  to  come  up  to  the  mark.  The 
justice  and  fair-mindedness  of  this  system,  and  the 
opportunities  it  gave  for  a  good  man  to  prove  his 
mettle  and  reap  the  reward  of  merit  made  it  sought 
after  by  the  best  men,  and  the  management  had  no 


EFFICIENCY  AND  WAGES  283 

difficulty  in  supplying  the  places  left  vacant  by  those 
who  dropped  out. 

Thus  we  see  that  even  where  payment  on  the 
basis  of  time  is  necessary  it  is  still  not  impossible 
to  give  the  workman  an  incentive  to  increase  his 
output.  The  workman  must  be  made  to  feel,  first  of 
all,  that  the  superintendent  knows  just  how  much 
he  is  doing  and  how  well  he  is  doing  it.  Next,  he 
must  be  disabused  of  the  idea  that  his  employers  have 
fixed  a  definite  sum  as  the  maximum  limit  of  his 
earnings,  beyond  which  he  cannot  go  no  matter  how 
well  he  does.  There  must  be  a  tangible  assurance 
that  each  man*s  wages  will  be  raised  as  he  improves 
and  that  those  who  fail  to  rise  to  a  certain  standard 
will  be  discharged.  The  hope  of  promotion  should 
constantly  be  kept  before  the  eyes  of  the  men  as  a 
goal  to  strive  for,  and  the  more  definite  and  concrete 
this  hope  can  be  made  to  appear,  the  better  will  be 
the  results. 

Thus  in  a  certain  telephone  appliance  factory, 
there  is  a  large  department  where  young  men  are 
paid  $8  a  week  to  solder  the -wires  onto  the  ends  of 
the  switch-board  plugs  and  perform  other  tasks. 
The  miscellaneous  nature  of  the  work  makes  it  neces- 
sary to  pay  by  the  day,  but  it  is  the  rule  of  the  shop 
that  when  the  men  have  acquired  sufficient  skill  and 
expertness  to  solder  a  standard  number  of  wires  in 
fourteen  minutes  they  shall  be  recommended  for  pro- 
motion to  the  next  department.  This  fourteen  min- 
utes' time  represents  to  them  the  definite  hope  of 
promotion,  and  one  and  all  eagerly  strive  for  the 
goal.  There  is  a  large  clock  in  plain  sight  by  means 
of  which  they  can  time  themselves.    It  was  highly 


284  BUSINESS  PEINCIPLES 

interesting  to  see  the  young  fellows  working  away  in 
friendly  rivalry,  the  new-comers  announcing  ''thirty 
minutes,"  ''twenty-six  minutes,"  and  so  on;  while 
those  that  had  been  there  some  time  were  making 
"twenty  minutes,"  or  "eighteen  minutes,"  as  the 
case  might  be.  One  man  announced  proudly,  "six- 
teen minutes,  two  off  the  last  and  two  more  to  go." 
The  foreman,  a  very  intelligent  man  and  highly  re- 
spected by  the  workmen,  told  the  writer  that  the 
candidate  for  promotion  nearly  always  got  his  time 
down  to  thirteen  minutes  before  submitting  to  the 
test  that  would  mean  his  recommendation  for  ad- 
vancement, so  as  to  allow  for  nervousness  or  mis- 
haps. When  asked  if  it  would  not  be  possible  to  fill 
the  shop  with  fourteen-minute  men,  he  replied,  "Oh, 
yes,  but  then  we  should  have  to  pay  them  fifteen  or 
eighteen  dollars  a  week.  These  lads  get  only  eight 
dollars,  but  the  opportunity  for  advancement  means 
a  lot  more  to  them  than  almost  any  amount  of  addi- 
tional pay  we  might  offer.  Besides,  with  skilled 
workers  on  even  high  pay  without  any  other  induce- 
ment it  would  be  almost  impossible  to  keep  them 
to  an  average  of  fourteen  minutes,  which  they  would 
regard  as  too  high  a  standard.  The  boys  here  do  not 
consider  this  time  as  unreasonable,  because  every 
two  or  three  months  they  see  some  one  of  their  num- 
ber promoted  for  achieving  it. 

3.  In  applying  the  principles  noted  above  for 
increasing  the  efficiency  of  men  employed  on  day 
rates,  care  should  be  exercised  in  apportioning  the 
work  lest  something  should  prevent  the  keeping  of 
strictly  individual  records  of  each  man's  perform- 
ance or  the  definite  assignment  of  responsibility. 


EFFICIENCY  AND  WAGES  285 

The  portioning  out  of  work  of  a  general  nature  with- 
out any  clear-cut  delimitation  of  just  what  each  man 
is  to  do  is  an  obstacle  that  will  prevent  clean  inspec- 
tion of  the  work  or  the  keeping  of  records.  More- 
over, there  is  no  doubt  that  when  time  is  the  basis  of 
payment  the  workman  will  accomplish  more  if  some- 
one assigns  him  a  definite  task,  or  definite  duties  to 
perform.  If  a  man  is  told  in  a  general  way  to  keep 
a  room  clean  and  attend  to  the  fire  there  is  every 
temptation  to  soldier,  and  every  kind  of  excuse  for 
failing  to  do  his  work  properly.  But  if  he  knows 
definitely  just  what  tasks  he  is  to  perform,  and  if 
in  addition  these  tasks  are  set  down  in  black  and 
white,  he  cannot  very  well  get  away  from  the  entire 
performance  of  his  duties.  The  use  of  instruction 
cards,  described  in  previous  sections,  may  well  be 
extended  to  work  of  every  class  and  character. 

Of  the  same  nature,  and  open  to  the  same  objec- 
tions, is  the  assignment  of  even  a  definite  and  fixed 
amount  of  work  to  a  group  of  men.  Even  if  inspec- 
tion is  most  rigid  and  careful  records  are  kept,  there 
is  no  satisfaction  to  be  gained  in  trying  to  fix  the 
responsibility  on  a  group  of  men.  A  will  say  that  B 
cleaned  the  windows  poorly;  B  will  say  that  he  had 
to  do  it  in  a  hurry  because  it  was  A's  turn,  and  any- 
way both  A  and  C  had  made  him  do  a  lot  of  work 
that  really  belonged  to  them.  C  will  say  that  he 
understood  A  was  to  wipe  off  the  machines,  and  A 
will  contend  that  he  would  have  done  so  if  D  had  not 
let  the  fire  go  out  and  left  it  for  him  to  build.  There 
are  very  few  operations  indeed  that  require  two  or 
more  men  to  cooperate  with  each  other  simultan- 
eously and  require  each  to  do  exactly  the  same  thing 


286  BUSINESS  PEINCIPLES 

SO  that  one  man's  work  cannot  be  distinguished  from 
another's.  Such  a  case  might  be  that  where  two 
men  have  to  lift  opposite  ends  of  steel  rods  to  load 
them  onto  trucks.  In  this  instance  it  is  difficult  to 
see  how  the  responsibility  could  avoid  being  divided. 
But  in  the  vast  majority  of  cases  where  men  work  in 
gangs  it  would  be  possible  by  a  careful  apportion- 
ment of  the  work  to  give  each  man  a  definite  task, 
keep  a  record  of  his  work  and  his  efficiency,  and  hold 
him  definitely  responsible  for  the  proper  perform- 
ance of  his  share. 

4.  Another  method  of  increasing  the  efficiency 
of  men  employed  on  day  rates  is  to  assign  them  a 
fairly  large  amount  of  work  and  then  let  them  go 
home  when  it  is  finished.  The  results  that  may  be 
secured  by  this  method  under  certain  conditions  are 
nothing  short  of  marvellous.  It  is  well  known  that 
in  the  southern  cotton  fields  before  the  war  it  was  a 
serious  problem  to  induce  the  negroes  to  put  forth 
their  best  efforts,  and  that  the  most  satisfactory 
method  was  to  assign  them  a  task  and  allow  them  to 
quit  when  the  task  was  finished.  In  this  way  an 
efficient  negro  could  be  induced  to  pick  twice  as  much 
cotton  as  usual,  and  often  finished  his  work  by  two 
or  three  o'clock.  When  this  system  is  tried  the 
workmen  should  have  a  fixed  hour  for  starting  to 
work,  but  should  have  no  regular  time  for  leaving. 
As  soon  as  their  task  is  finished  they  should  be 
allowed  to  go  home.  At  the  same  time  it  should  be 
noted  that  this  system  is  liable  to  the  same  faults  as 
appear  with  ordinary  piece-work.  If  the  workman 
thinks  that  his  leaving  at  an  early  hour  will  be  a 
signal  for  the  employer  to  increase  his  task  on  the 


EFFICIENCY  AND  WAGES  287 

ground  that  it  was  not  large  enough  in  the  begin- 
ning the  plan  falls  to  the  floor  at  once.  The  work 
assigned  should  be  sufficient  to  keep  a  man  busy  a 
good  part  of  the  day,  and  then  the  workman  should 
be  assured  that  no  cut  in  his  pay  will  be  made  and 
no  additional  work  given  him  no  matter  how  soon  he 
finishes,  except  at  his  option  on  the  basis  of  addi- 
tional pay  in  proportion  to  any  increase  of  work  that 
may  be  suggested.  Otherwise  the  workman  will 
prefer  to  stay  in  the  shop  the  full  time  and  soldier 
on  his  work,  rather  than  run  the  risk  of  having  his 
liberty  cut  in  half  by  a  large  assignment. 

The  foregoing  method  has  found  its  most  success- 
ful application  in  the  case  of  the  younger  members 
of  the  industrial  community.  The  wages  of  children 
usually  go  in  large  part  to  their  parents,  so  that  the 
ordinary  inducements  of  greater  pay  for  larger  out- 
put often  fail  to  have  any  effect  on  them.  Piece- 
work and  bonuses  and  premiums  offer  no  attraction. 
But  each  child's  play- time  is  his  own,  and  he  will 
often  double  his  output  in  order  to  gain  an  hour  or 
two  of  leisure  at  the  end  of  the  day.  It  is  not  neces- 
sary to  point  out  that  the  ordinary  precautions  in 
regard  to  inspection  of  the  product  should  be  more 
than  ordinarily  strict  in  cases  of  this  kind  in  order 
to  prevent  deterioration  in  the  quality. 

As  with  children,  so  with  workmen  of  a  low  intel- 
lectual equipment  and  men  who  have  little  expecta- 
tion or  chance  of  advancement,  the  policy  of  allowing 
the  laborer  to  go  home  when  his  task  is  finished  has 
proven  successful.  The  reason  for  this  is  that  such 
men  are  not  usually  far-sighted  enough  to  be  willing 
to  strive  for  future  gains,  even  when  that  future  is  a 


288  BUSINESS  PEINCIPLES 

very  neai*  one.  Here  the  prospect  of  promotion  may 
not  be  sufficiently  vivid  to  appear  as  a  goal  worth 
striking  out  for.  Perhaps  they  are  men  who  could 
not  suceed  in  any  higher  grade  of  work,  even  if  they 
were  given  a  chance.  In  the  illustration  of  the  red 
credit  cards  given  above,  such  a  plan  would  fail  with 
workmen  not  sufficiently  far-sighted  to  see  the  in- 
crease of  half  a  dollar  a  week  ten  weeks  ahead.  But 
to  such  men  the  prospect  of  an  hour  or  two  of  leisiu'e 
at  the  end  of  each  day  appeals  very  strongly,  and 
they  may  be  induced  to  push  their  work  through  at 
a  high  rate  of  speed  in  order  to  secure  it. 

5.  Of  interest  in  this  connection  is  the  so-called 
premium  plan  of  paying  for  labor.  It  resembles  the 
method  last  described  in  that  a  fair  day's  task  is  set 
and  the  workman  encouraged  to  finish  it  as  soon  as 
possible.  At  the  completion  of  the  task,  however, 
the  laborer,  instead  of  being  allowed  to  go  home, 
continues  at  work  for  the  rest  of  the  day  and  is  paid 
a  premium  on  the  time  saved,  consisting  of  a  fraction 
of  the  amount  he  has  saved  his  employer  by  finishing 
his  task  quickly.  This  plan,  while  based  on  day 
work,  partakes  more  fully  of  the  nature  of  piece- 
work, and  will  be  reserved  for  fuller  discussion  in  a 
following  chapter. 

Perhaps  a  word  may  be  inserted  here  in  regard 
to  cooperative  or  profit-sharing  plans.  There  is  not 
time  to  enter  into  a  full  discussion  of  cooperative 
enterprises,  with  their  advantages  and  disadvan- 
tages, but  it  deserves  mention  as  one  of  the  devices 
invented  to  increase  the  laborer's  interest  in  enlarg- 
ing his  output.  Briefly  and  simply  stated,  under  this 
plan  the  gross  profits  at  the  end  of  six  months  or  a 


EFFICIENCY  AND  WAGES  289 

year  are  determined  and  a  certain  percentage  of 
these  is  divided  among  the  workmen,  usually  in  pro- 
portion to  their  rate  of  wages.  The  profit-sharing 
plan  treats  the  business  as  a  whole  and  the  workmen 
in  a  body,  the  idea  being  that  the  workmen  will  feel 
an  interest  in  lowering  costs  of  production  because 
the  extra  efforts  they  put  forth  will  be  rewarded  at 
the  end  of  the  year  by  a  larger  distribution  of  profits. 
Cooperative  experiments  have  had  a  wide  success 
in  Europe  and  particularly  in  England,  but  have  not 
attracted  much  attention  on  this  side  of  the  Atlantic. 
Except  in  certain  industries  and  under  special 
conditions  the  profit-sharing  plan  contains  features 
that  do  not  tend  to  make  it  a  success  so  far  as  stimu- 
lating the  workmen  to  their  highest  efforts  is  con- 
cerned. We  have  seen  that  an  important  aid  in  in- 
fluencing men  to  do  their  best  consists  in  holding  out 
to  them  hopes  of  promotion  or  greater  pay  or  some 
form  of  individual  reward.  Under  the  profit-sharing 
plan  the  rewards  are  paid  out  regardless  of  indi- 
vidual merit.  The  lazy  and  incompetent  reap  the  har- 
vest sown  by  the  energetic  and  capable.  There  is  no 
scope  given  for  personal  ambition.  Unless  all  the 
workmen  are  imbued  with  a  powerful  interest  in  fur- 
thering the  general  welfare,  the  incentive  to  extra 
effort  is  lacking  to  the  individual  workman.  He 
knows  that  his  own  faster  pace,  unless  seconded  by 
the  efforts  of  all  about  him,  will  have  no  appreciable 
effect  on  his  personal  reward.  On  the  contrary,  he 
is  liable  to  feel  that  his  exertions  are  increasing  the 
pay  of  the  lazy  fellow  next  to  him.  The  tendency, 
therefore,  is  for  all  to  slow  down  to  the  gait  of  the 
lazy  and  incapable. 


290  BUSINESS  PEINCIPLES 

A  second  count  against  the  profit-sharing  plan 
lies  in  the  remoteness  of  the  reward.  Some  men  are 
possessed  of  enough  far-sightedness  to  strive  for 
distant  benefits,  but  when  those  benefits  are  six 
months  or  a  year  away,  and  at  that  are  shared  by 
others  and  may  be  nullified  by  the  laziness  and  inef- 
ficiency of  others,  the  prize  does  not  appeal  very 
strongly  to  the  average  workman. 

On  the  other  hand,  there  are  variations  on  the 
profit-sharing  plan  that  have  proven  eminently  suc- 
cessful in  this  country.  Some  establishments  make 
a  practice  of  sharing  profits  with  foremen  and  heads 
of  departments,  or  offer  stock  to  them  at  specially 
favorable  rates.  As  an  incentive  to  extra  efforts 
this  device  is  much  more  powerful  with  the  foremen 
and  higher  officials  than  with  the  ordinary  workmen, 
and  for  several  reasons.  In  the  first  place,  though 
the  common  laborer  will  feel  that  extra  exertions  on 
his  part  will  not  have  much  result  so  far  as  his  earn- 
ings are  concerned,  the  foreman's  efforts  have  a  very 
appreciable  effect  on  the  gross  earnings  of  the  com- 
pany. Good  work  on  his  part  may  save  the  com- 
pany thousands  of  dollars.  Second,  the  men  higher 
up  are  generally  of  a  superior  mental  calibre,  who 
are  capable  of  putting  their  best  efforts  into  an  at- 
tempt to  secure  a  prize  that  is  six  months  or  a  year 
away. 

Thirdly,  the  heads  of  departments,  being  few  in 
number  and  coming  into  close  contact  with  one  an- 
other, can  plan  together  as  to  the  best  methods  of 
reducing  costs  of  production  and  increasing  profits. 
The  workman  has  no  means  of  telling  whether  the 


EFFICIENCY  AND  WAGES  391 

men  outside  of  his  immediate  vicinity  are  pulling 
with  him  or  against  him. 

The  profit-sharing  plan,  then,  has  in  general  little 
to  recommend  it  as  a  means  of  spurring  the  work- 
men to  greater  efforts.  It  would,  of  course,  be  a 
more  potent  force  in  the  case  of  an  exceptionally- 
intelligent  body  of  workmen.  But  as  a  rule,  the 
fact  that  it  makes  no  appeal  to  the  personal  ambition 
of  the  men,  and  offers  a  reward  so  remote  as  to  be 
unattractive  to  the  majority,  nullifies  any  in- 
fluence it  might  have  toward  lowering  the  costs  of 
production. 


CHAPTER  Xn. 
EFFICIENCY    AND    WAGES;    PIECE    WORK. 

Broadly  speaking,  there  are  in  reality  only  two 
methods  of  paying  for  labor  in  common  use.  In  the 
preceding  chapter  was  considered  the  older,  simpler, 
and  more  general  method  of  paying  by  the  day,  or 
in  proportion  to  the  amount  of  time  consumed.  In 
this  chapter  we  are  to  consider  payment  in  propor- 
tion to  the  amount  of  work  done,  known  as  the  piece- 
work plan.  Strictly  speaking,  there  are  a  number 
of  other  methods,  some  of  which  will  call  for  treat- 
ment in  their  proper  place,  but  when  these  are 
closely  examined  we  shall  find  that,  although  they 
contain  principles  valuable  in  themselves,  they  are 
invariably  only  variations  or  modifications  of  one  or 
the  other  of  the  two  general  methods. 

Payment  by  the  piece  carries  with  it,  of  course, 
a  careful  and  accurate  measurement  of  the  work 
done;  and  in  principle,  has  the  advantage  over  the 
day  wage  plan  of  rewarding  the  laborer  exactly  in 
proportion  to  his  exertions.  In  principle  it  is  the 
antithesis  of  the  other,  in  that  with  day  work  the 
laborer  has  no  direct  interest  normally  in  any  in- 
creased production  that  he  may  bring  about  through 
more  energetic  or  more  intelligent  efforts.  He  may 
have,  as  we  have  seen,  an  indirect  interest  in  increas- 

293 


294  BUSINESS  PEINCIPLES 

ing  his  output,  in  the  form  of  increased  pay,  approval 
of  the  management,  and  hope  of  promotion,  or  even 
in  the  prospect  of  leisure  hours  at  the  end  of  the  day. 
In  fact,  under  the  best  type  of  day  work,  when  accu- 
rate records  are  kept  of  the  performance  of  each 
man  and  of  his  efficiency,  when  each  man's  wages 
are  increased  in  proportion  to  his  progress  and  those 
who  fail  are  censured  or  discharged,  and  when  the 
hope  of  promotion  is  given  definite  and  concrete 
form,  the  indirect  interest  of  the  laborer  in  the 
quality  and  quantity  of  his  output  may  be  made  a 
most  powerful  spur. 

With  piece  work,  on  the  contrary,  the  indirect 
interest  in  larger  production  becomes  direct  for  the 
workman,  and  indirect  supposedly,  for  the  employer. 
That  is,  the  laborer  is  not  paid  any  fixed  amount,  pre- 
sumably, but  in  direct  proportion  to  his  exertions; 
while  the  employer  seemingly  has  no  interest  in  the 
amount  that  each  workman  does,  because  each  unit 
of  product  costs  him  in  labor  exactly  the  same 
amount  whether  it  be  turned  out  slow  or  fast.  In 
actual  practice,  however,  neither  of  these  statements 
proves  true.  The  workman  invariably  finds  that  if 
he  earns  too  much  the  rate  per  piece  will  be  cut,  so 
that  he  is  deprived  of  his  direct  interest  in  a  large 
output.  As  for  the  employer,  the  increase  in  the 
overhead  or  indirect  costs  of  production  becomes  so 
alarming  if  the  work  is  not  rapidly  done,  that  his 
interest  in  a  large  output  per  man  easily  becomes 
direct.  Thus  it  may  be  seen  that  piece  work,  even 
where  it  is  practical,  is  not  by  any  means  an  easy 
solution  of  the  faults  we  have  found  in  the  previous 
chapter  to  be  inherent  in  the  day-wage  plan.    We 


EFFICIENCY  AND  WAGES  295 

shall  have  to  study  the  problem  carefully  in  all  its 
bearings  before  we  can  arrive  at  a  conclusion  as  to 
the  conditions  under  which  the  piece-work  method 
of  paying  for  labor  will  give  the  greatest  satisfaction 
to  both  employer  and  employe. 

As  a  preliminary  to  the  study  of  this  problem,  it 
may  be  well  to  consider  the  conditions  under  which 
piece  work  is  or  is  not  preferable  to  the  plan  of  pay- 
ment by  the  day.  Broadly  speaking,  piece  work  may 
be  applied  where  the  amount  of  work  done  appears  in 
definite  units  of  concrete  form  so  that  it  may  be 
measured.  It  will  be  remembered  that  there  is  a 
vast  amount  of  work  that  at  first  sight  appears  so 
miscellaneous  or  variable  in  its  nature  that  its  accu- 
rate measurement  seems  impossible,  yet  which  may 
be  reduced  to  definite  form  by  careful  apportionment 
and  delimitation.  To  the  rule  that  payment  by  the 
piece  may  be  made  where  the  results  appear  in  stand- 
ard imits  of  work  done,  certain  exceptions  have 
already  been  noted.    To  recapitulate : 

1.  Where  scrupulous  perfection  of  workmanship 
is  necessary,  it  may  not  be  wise  to  stimulate  the 
workman  to  increase  his  output,  for  fear  that  imper- 
fect quality  will  cost  more  than  is  gained  in  labor 
expense. 

2.  Where  the  quality  is  not  easily  tested  by  in- 
spection, as,  for  example,  in  work  done  by  a  number 
of  men,  no  one  of  whom  can  be  definitely  held  re- 
sponsible for  imperfections.  This  may  often  be 
avoided  by  inspecting  the  work  of  each  man  as  it  is 
finished. 

3.  Where  very  delicate  and  valuable  machinery 


296  BUSINESS  PEINCIPLES 

may  be  impaired  by  undue  haste  in  running  or 
using  it. 

4.  Where  the  workers  are  kept  involuntarily  idle 
part  of  the  time,  they  should  be  paid  by  the  day  at 
least  during  the  time  they  are  unemployed. 

5.  When  new  work  comes  in  that  has  not  been 
done  before,  or  when  new  men  are  learning  to  do 
work  that  will  require  a  period  of  training  before 
they  can  become  expert  enough  to  do  it  fast,  it  is 
necessary  to  pay  by  the  day  until  it  becomes  pos- 
sible to  judge  what  will  be  a  satisfactory  piece  rate. 

Antecedent  to  a  clear  understanding  of  our  sub- 
ject, will  be  a  consideration  of  the  objections  most 
commonly  offered  against  the  piece-work  system. 
These  objections,  with  a  word  or  two  as  to  their  val- 
idity, may  be  summarized  as  follows : 

1.  Many  manufacturers  fear  to  stimulate  their 
men  to  greater  speed  by  paying  so  much  per  piece, 
because  they  think  that  "haste  makes  waste,"  that 
any  increased  output  due  to  greater  speed  will  be 
accompanied  by  a  deterioration  in  the  quality  of  the 
product,  and  a  greater  waste  of  materials  used.  In 
work  calling  for  great  delicacy  of  touch  and  fineness 
of  adjustment,  where  a  single  misstep  would  cost 
the  price  of  many  hours  of  labor,  we  have  seen  that 
caution  is  needed.  As  a  matter  of  fact,  such  instances 
are  rare,  and  can  as  a  rule  be  easily  recognized.  In 
the  generality  of  cases,  what  is  needed  is  not  avoid- 
ance of  haste,  but  more  rigid  supervision  and  inspec- 
tion. Experience  has  proved  that  men  on  piece-rate 
can,  and  will,  turn  out  work  of  quite  as  high  quality 
as  those  who  are  paid  by  the  day  and  allowed  to  take 
their  time.    The  use  of  modern  methods  and  system 


EFFICIENCY  AND  WAGES  297 

for  insuring  perfection  of  workmanship  has  in  large 
part  scared  away  the  bugaboo  of  quality  subordi- 
nated to  quantity.  The  use  of  instruction  cards  and 
the  employment  of  foremen  and  supervisors  who  will 
see  that  the  instructions  are  carefully  carried  out; 
careful  inspection  of  the  work,  and  definite  fixing  of 
responsibility  for  imperfections;  and  lastly,  accurate 
records,  showing  not  only  the  quantity  but  the  qual- 
ity of  the  work  turned  out,  have  proved  more  than 
ample  insurance  against  faulty  products. 

As  for  the  idea  conveyed  in  the  proverb  ^*  haste 
makes  waste,"  it  is  undoubtedly  true  that  there  are 
certain  rare  instances  in  which  more  materials  must 
be  used  in  accomplishing  given  results  if  the  work  is 
done  fast.  In  certain  branches  of  the  textile  indus- 
tries, for  example,  machines  that  are  run  rapidly  use 
up  a  greater  amount  of  raw  material  per  yard  of 
product  than  those  whose  rate  of  speed  is  more  de- 
liberate, because  of  broken  thread-ends  that  must 
be  thrown  away.  This  one  factor  causes  an  enor- 
mous difference  in  the  methods  of  textile  production 
in  this  country  and  abroad.  In  Europe  the  machines 
are  run  slowly,  especially  in  the  case  of  valuable 
fabrics  like  silk,  in  order  to  save  all  that  is  possible 
in  raw  material.  In  this  country,  the  immensely 
greater  cost  of  labor  makes  it  necessary  to  run  the 
machines  at  the  highest  rate  of  speed,  in  order  to 
secure  the  greatest  output  per  unit  of  labor,  because 
the  increase  in  the  amount  of  raw  material  used  up 
does  not  cost  so  much  as  the  greater  cost  of  labor 
required  if  the  machines  were  to  run  more  slowly. 

It  is  seldom,  however,  that  haste  makes  waste, 
in  the  sense  that  ^*  waste''  is  the  unavoidable  concom- 


298  BUSINESS  PRINCIPLES 

itant  of  more  rapid  production.  What  is  usually 
meant  by  this  statement  is  that  the  workman  will  be 
more  careless  of  materials  if  he  is  stimulated  by  piece 
rates  to  increase  his  output.  It  need  scarcely  be 
pointed  out  that  this  can  be  avoided  even  more  easily 
than  imperfection  in  workmanship,  by  careful  super- 
vision and  the  use  of  instruction  cards.  In  fact,  a 
considerable  saving  in  materials  has  frequently  been 
effected  by  greater  division  of  labor,  strict  appor- 
tionment of  the  amounts  to  be  used  by  the  workmen, 
and  proper  supervision  and  instruction.  Many  man- 
ufacturers have  foimd  it  profitable  to  employ  special 
workmen  to  cut  the  stock  to  be  used  into  the  proper 
shapes  and  sizes,  so  that  the  operator  who  is  to  use 
it  wiU  not  only  find  his  work  greatly  facilitated,  but 
will  have  no  excuse  for  using  up  more  than  the  most 
economical  amount  necessary. 

Even  where  greater  ^* waste"  of  material  is  in- 
herently unavoidable  in  more  rapid  production,  it 
becomes  a  question  whether  the  gains,  both  in  labor 
cost,  and  also  in  overhead  expenses,  do  not  more 
than  compensate  for  the  loss  in  materials  used.  The 
manufacturer  who  has  at  his  command  an  efficient 
and  acciu'ate  cost  system  that  will  show  both  the 
labor  and  overhead  charges  for  each  department,  can 
easily  determine  this  question  by  a  Uttle  experimen- 
tation combined  with  a  comparison  of  the  records 
made  by  each  method  of  production. 

2.  Another  objection  to  piece  work  is  based  on 
the  supposition  that  if  too  great  stimulus  is  given 
to  induce  men  to  increase  their  pace,  they  will  exert 
themselves  to  the  detriment  of  their  health, — in 
other  words,  **work  themselves  to  death."    While 


EFFICIENCY  AND  WAGES  299 

this  objection  is  entirely  groundless  in  the  vast  ma- 
jority of  cases,  there  are  certain  instances  in  which 
it  holds,  and  certain  conditions  under  which  work- 
men will  overexert  themselves.  The  sweatshop  sys- 
tem in  New  York  is  a  most  notable  case  in  point. 
There  the  influx  of  vast  hordes  of  Jewish,  Italian, 
and  Polish  immigrants,  ignorant  of  conditions  in  a 
new  country,  scattered  so  that  they  cannot  effectively 
organize,  and  eager  to  obtain  work  on  any  terms,  has 
produced  a  set  of  conditions  not  duplicated  anywhere 
else  in  the  world.  The  clothing  manufacturers,  by  a 
combination  of  piece  work,  task,  and  contract  sys- 
tems, are  enabled  to  hire  these  men  at  rates  so  low 
that  they  have  to  work  excessively  long  horn's  at 
breakneck  speed  in  order  to  earn  a  mere  livelihood. 
Fortunately,  such  conditions  are  not  found  in  other 
places  or  other  occupations.  Another  instance  of 
overexertion  is  found  in  those  rare  cases  where  work- 
men will  idle  three  days  in  the  week,  and  work  at  top 
speed  the  other  three  days  in  order  to  make  up  a 
wage  proportional  to  their  standard  of  living.  This, 
however,  is  due  to  the  improvidence  of  the  workmen, 
and  could  be  done  away  with  by  setting  a  task  to 
be  performed  each  day.  In  general,  experience  has 
shown  that  laborers  will  not  injure  their  health  to 
bring  up  their  earnings  unless  the  rate  of  pay  is  so 
low  as  to  make  it  necessary  for  them  to  do  so  in  order 
to  make  bare  living  expenses. 

3.  Another  objection  often  raised  is,  that  the 
piece  rates  are  too  low.  We  shall  have  to  consider, 
later,  on  what  basis  the  rate  should  be  made.  It  is 
enough  to  note  here  that  this  objection  is  no  different 
in  principle  from  the  contention  that  the  laborer  is 


300  BUSINESS  PEINCIPLES 

not  paid  high  enough  wages  generally,  a  discussion 
of  which  would  carry  us  too  far  afield. 

4.  The  most  vital  weakness  of  the  piece-rate  sys- 
tem lies  in  the  fact  that  it  almost  invarably  leads  to 
systematic  *' soldiering"  on  the  part  of  the  workman, 
in  order  to  deceive  his  employer  as  to  the  rate  at 
which  work  can  be  turned  out.  This  is  partly  due 
to  natural  laziness,  the  tendency  to  take  it  easy, 
partly  to  the  **Lump  of  Labor"  theory,  but  mostly 
to  the  practice  of  "nibbling,"  or  cutting  the  rates  on 
the  piece  which  seems  inseparable  from  this  method 
of  paying  labor.  Mr.  F.  S.  Halsey,  in  arguing  for 
his  ** premium  plan,"  says  that  the  fundamental  de- 
fect of  piece  work  is  that  its  initial  incentive  is  too 
high.  Invariably  the  time  comes,  no  matter  how  the 
price  rate  may  have  been  computed,  when  the  wage 
earned  is  too  high  for  the  labor  employed.  A  cut  in 
the  rate,  therefore,  seems  necessary.  What  most  em- 
ployers fail  to  see  is,  that  this  really  makes  the  piece 
rate  pay,  from  the  workman's  point  of  view,  a  sys- 
tem of  penalties  for  doing  well.  It  results  naturally 
in  a  whole  or  partial  cessation  of  speed  effort  on  the 
part  of  the  employe,  which  in  turn  causes  loss  from 
slow  movement  of  stock,  waste  time  on  machines  and 
equipment,  and  general  increase  in  overhead  ex- 
pense. Thus  the  piece  rate  system  generally  oper- 
ates to  defeat  the  very  object  which  it  was  expected 
to  accomplish.  This  aspect  of  the  case  cannot  be 
better  given  than  in  the  words  of  Mr.  Halsey,  taken 
from  an  article  in  the  Sibley  Journal  of  Mechanical 
Engineering  (Vol.  XVI,  March,  1902) : 

"A  piece  of  work  has  been  done  by  day's  work, 
and  it  is  proposed  to  change  it  to  piece  work.    The 


EFFICIENCY  AND  WAGES  301 

piece  cost  under  the  day  system  is  first  determined, 
and  a  somewhat  smaller  price  is  then  set  and  given 
to  the  workman.  If  he  has  had  no  experience  with 
piece  work,  he  feels  that  he  cannot  *make  wages,'  and 
objects.    *    *    * 

^'No  man  knows  what  he  can  do  tinder  an  incen- 
tive until  he  has  tried  it.  The  workman,  in  saying 
that  he  cannot  make  wages  at  the  piece  prices  offered 
when  piece  work  is  first  introduced,  is  entirely  sin- 
cere, but  he  is  nevertheless  mistaken.  All  experience 
shows  that  when  the  test  comes,  the  increase  of  out- 
put under  the  incentive  of  piece  rates  is  far  beyond 
what  anyone — ^manager  or  workman — would  have 
believed  possible.  The  output  mounts  up,  and  the 
wages  go  with  it;  and  the  employer  soon  finds  that 
he  is  paying  an  extravagant  rate  of  daily  wages — 
an  extravagant  rate  being  understood  as  a  rate  ma- 
terially in  excess  of  what  it  would  be  necessary  to  pay 
another  workman  for  doing  the  same  work,  he  having 
the  other  man's  experience  before  him.  The  em- 
ployer submits  to  this  for  a  time,  but  the  wages  con- 
tinue to  increase;  and  ultimately  he  is  driven  to  his 
only  recourse, — ^he  cuts  the  piece  price.  This  is  an 
immediate  announcement  to  the  workman  that  the 
promises  of  piece  work  are  false.  He  was  told  that 
he  would  be  paid  a  certain  rate  per  piece,  but  he  finds 
that  to  be  true  up  to  a  certain  limit  only.  The  work- 
man, under  compulsion,  accepts  the  new  price,  but 
unless  he  is  very  dull,  he  has  learned  a  lesson.  If  he 
is  very  dull,  it  may  require  a  second  cut  to  enforce 
this  lesson;  and  this  second  cut,  either  on  the  price 
of  his  own  work  or  that  of  some  fellow- workman,  is 
soon  forthcoming.    The  lesson  is  that  if  he  pushes 


303  BUSINESS  PRINCIPLES 

his  production  to  a  point  which  raises  his  earnings 
beyond  a  certain  more  or  less  clearly  defined  limit, 
the  direct  result  will  be  a  cut  in  the  piece  price.  Per- 
haps new  men  come  in,  or  the  old  ones  are  given  new 
work  to  do;  the  result  is  the  same.  If  any  one  is  so 
imwise  or  so  unfortunate  as  to  do  a  large  amount,  he 
is  at  once  punished  for  it  by  having  his  rate  cut. 
Such  cuts,  from  the  workman's  point  of  view,  have 
but  one  result ;  he  is  compelled  to  work  harder  than 
before,  but  he  earns  no  more." 

The  foregoing  arraignment  of  the  piece-work  sys- 
tem is  fully  justified  by  the  facts  in  thousands  of 
instances.  In  fairness  to  the  system,  however,  it 
must  be  said  that  such  extreme  conditions  are  not 
universal.  In  practice  they  are  found  only  when,  in 
the  first  place,  due  thought  and  consideration  have 
not  been  given  to  the  determination  of  the  piece  rate 
in  the  beginning;  second,  where  the  management  is 
inexperienced  in  handling  the  system,  which  perhaps 
amounts  to  the  same  thing.  It  is  perhaps  not  true 
that  the  workman  is  totally  unfair  in  his  attitude 
toward  a  cut  in  the  rate  when  the  rate  is  easily  seen 
to  be  excessive.  The  writer  has  talked  with  work- 
men on  this  point,  and  they  seem  as  a  rule  to  be  fair- 
minded  about  earnings  that  are  really  excessive. 
Two  workmen  in  an  agricultural  supplies  manufac- 
turing company  agreed  perfectly  that  when  the  piece 
work  on  which  they  were  engaged  was  started,  they 
earned  more  than  the  company  could  afford  to  pay. 
**When  this  was  first  put  on  piece  rates,"  one  of 
them  said,  **we  kept  earning  more  and  more,  until  we 
were  drawing  twenty-five  and  even  thirty  dollars  a 
week.    We  knew  it  couldn't  last,  because  the  boss 


EFFICIENCY  AND  WAGES  '      303 

could  easily  get  men  to  do  it  for  fifteen.  When  the 
cut  came,  we  expected  it,  and  acquiesced  readily, 
merely  congratulating  ourselves  that  it  had  not  come 
sooner." 

**But,  if  you  had  not  earned  so  much?"  was 
suggested. 

*'Yes,  if  we  had  not  earned  so  much  in  the  first 
place,"  was  the  reply,  accompanied  by  a  glance  at 
his  friend  as  if  to  say,  ** That's  where  we  made  our 
mistake.  If  we  had  not  speeded  up  at  first,  there 
would  have  been  no  excessive  earnings,  consequently 
no  cut  in  the  rate;  consequently  we  could  now  be 
earning  our  eighteen  dollars  a  week,  with  much  less 
effort  than  we  actually  have  to  spend  with  the  rates 
reduced." 

There  you  have  the  situation  in  a  nutshell.  The 
employes  are  not  unreasonable  about  excessive  earn- 
ings. They  know  that  when  earnings  get  too  high, 
the  rate  will  be  cut  because  the  management  can  hire 
somebody  else  to  do  the  work  cheaper.  But  they  are 
not  blind  to  their  own  interests.  Their  only  gain  can 
come  from  not  earning  excessive  wages.  Since  they 
cannot  gain  in  money,  they  can  at  least  see  to  it  that 
their  wages  come  to  them  as  easily  as  possible,  so 
they  conceal  the  amount  of  work  that  can  be  done, 
by  systematic  *' soldiering."  This  soldiering  is  often 
applied  at  the  beginning,  when  the  rate  is  started, 
and  systematically  carried  out  in  subsequent  opera- 
tions. Expert  investigation  has  shown  that  the 
amount  of  such  soldiering  is  almost  beyond  belief. 
Doctor  Taylor  says  that  it  is  not  unusual  for  a  man  to 
soldier  to  the  extent  of  400  per  cent.  At  a  recent 
meeting  of  a  manufacturers'  association,  one  mem- 


304  BUSINESS  PEINCIPLES 

ber  made  an  address  in  which  he  declared  that  recent 
investigations  had  convinced  him  that  all  the  estab- 
lishments in  the  country  did  not  turn  out  on  an  aver- 
age more  than  one-third  of  what  would  be  possible  if 
the  organization  and  system  were  efficient  enough  to 
enable  them  to  realize  all  that  could  be  done  in  the 
way  of  a  larger  output. 

An  illustration  from  the  writer's  own  experience 
will  show  what  may  be  regarded  as  a  typical  situ- 
ation under  the  piece-rate  system.  When  a  mere  lad 
of  seventeen,  he  spent  a  summer  vacation  working  in 
an  electrical  concern.  The  foreman  told  him  that  he 
was  supposed  to  earn  about  20  cents  an  hour.  One 
day  a  number  of  small  coils,  thirty  in  all,  came  to  him 
to  be  insulated,  on  piece  work.  The  rate  was  10 
cents  a  coil,  and  each  one  was  supposed  to  take  about 
half-an-hour.  At  this  time  the  writer  had  not  been 
in  the  shop  more  than  a  few  days,  and  was  absolutely 
** green''  at  the  work.  But  he  set  to  and  finished  the 
thirty  coils  in  three  hours,  an  average  of  six  minutes 
to  the  piece.  As  he  started  to  turn  in  the  time  on 
the  work,  his  neighbor  asked  him  how  long  it  had 
taken.  On  being  told,  the  man  cried  in  horror- 
stricken  tones,  ''For  Heaven's  sake,  don't  turn  that 
in!"  A  conference  of  the  older  men  was  held  on  the 
spot,  and  a  gray-headed  workman  spent  half-an-hour 
explaining  to  the  ''green  hand"  what  it  would  mean 
to  everyone  if  so  outrageous  a  time  were  to  appear  on 
the  company's  books.  The  time,  as  finally  turned 
in,  was  made  twelve  hours  instead  of  three;  and  the 
writer  spent  the  rest  of  that  day,  and  most  of  the 
next,  undoing  his  work  and  doing  it  over  again,  in 


EFFICIENCY  AND  WAGES  305 

order  to  give  an  appearance  of  bustling  activity  to 
his  presence  in  the  shop. 

What  is  really  needed  to  prevent  soldiering  on 
piece  work  is,  first,  an  accurate  determination  of 
what  is  really  the  minimum  time  in  which  an  average 
or  first-class  man  can  complete  a  job;  second,  a  suf- 
ficiently large  increase  in  the  pay  to  induce  the  work- 
man to  use  his  utmost  efforts  to  attain  this  minimum 
or  standard  time;  and,  third,  an  absolute  assurance 
that  the  piece  rate,  when  once  set,  will  not  be  cut  for 
a  very  considerable  period.  Let  us  consider  these 
features  in  turn. 

The  determination  of  standard  times  on  machine 
operations  has  already  been  discussed  in  a  previous 
chapter.  There  it  was  discovered  that  greater  effi- 
ciency in  machine  operations  leads  to  saving,  not 
only  in  showing  the  workman  how  to  carry  on  his 
work  in  the  quickest  time,  but  also  through  the  dis- 
covery and  use  of  the  best  metals,  the  best  cutting 
angles,  the  best  feed  and  speed.  The  determination 
of  the  quickest  time  for  other  than  machine  work  has 
already  been  touched  upon;  for  a  fuller  considera- 
tion of  this  important  subject,  we  shall  have  to  take 
up  a  discussion  of  Dr.  Taylor's  ** Study  of  Unit 
Times,"  in  which  he  attempts  to  determine  with 
scientific  accuracy  the  standard  minimum  time  for 
work  of  any  kind. 

To  induce  men  to  work  at  their  maximum  speed, 
it  is  absolutely  necessary  for  the  employer  to  aban- 
don all  ideas  of  a  fixed  minimum  beyond  which  the 
workman  cannot  go.  A  very  considerable  increase 
in  the  average  rate  of  pay,  together  with  an  assm*- 
ance  that  the  rate  will  not  be  cut,  will  invariably 


306  BUSINESS  PEINCIPLES  " 

work  wonders  in  the  way  of  enlarging  the  output. 
The  exact  percentage  by  which  wages  must  be  raised 
to  secure  the  proper  results,  will  vary  according  to 
the  nature  of  the  work  and  the  intelligence  of  the 
workman.  The  experience  of  those  who  are  skilled 
in  this  kind  of  work  has  brought  out  certain  more  or 
less  definite  standards.  For  ordinary  kinds  of  work, 
not  requiring  special  skill,  very  close  application,  nor 
extra  hard  exertion,  it  is  necessary  to  pay  about  30 
per  cent  more  than  the  average.  For  ordinary  day 
labor  not  requiring  special  skill  or  intelligence,  but 
calling  for  strength  and  severe  bodily  exertion,  pay 
50  to  60  per  cent  above  the  average  will  secure  the 
best  results.  If  the  work  calls  for  intelligence  and 
skill  and  close  application,  such  as  the  more  difficult 
and  delicate  machine  work,  an  increase  of  70  or  80 
per  cent  will  be  required.  If  the  maximum  speed  will 
call  for  severe  bodily  exertion  and  close  application 
from  men  of  brains,  intelKgence,  and  skill,  it  may  be 
necessary  to  double  their  wages  in  order  to  induce 
them  to  take  on  the  high  rate  of  speed. 

These  increases  will  cause  many  an  employer  to 
throw  up  his  hands  in  dismay.  Yet  if  it  is  possible, 
as  the  experience  of  those  who  have  tried  it  abun- 
dantly prove,  to  get  three  and  four  times  the  ordi- 
nary output  by  these  methods,  the  saving  will  be 
simply  tremendous.  The  percentages  of  increase 
shown  above  have  been  tried  and  tested.  If  less  is 
paid,  the  workmen  will,  as  a  rule,  prefer  their  old 
rate  of  speed  at  their  old  rate  of  wages.  Men  will 
not  work  at  their  best  unless  assured  of  a  liberal  in- 
crease of  pay,  and  this  increase  must  be  permanent. 

On  the  other  hand,  the  increase  should  not  be 


EFFICIENCY  AND  WAGES  307 

more  than  is  necessary,  for  the  good  of  both  the  em- 
ployer and  the  workman.  It  amomits  to  a  truism  to 
say  that  it  is  necessary  to  pay  what  is  necessary  to 
get  work  done,  but  no  more.  It  may  be  said  that  the 
workman,  if  asked  to  treble  his  output,  may  claim 
that  his  pay  should  be  trebled  too.  But  as  we  have 
seen  in  the  case  of  standard  times  for  machining,  the 
increased  output  is  as  much  due  to  new  methods,  bet- 
ter tools,  instruction  cards,  and  more  efficient  super- 
vision, as  it  is  to  the  increased  exertions  of  the  work- 
men, a  fact  which  the  latter  will  readily  concede. 
Experience  has  shown  that  the  real  difficulty  con- 
sists in  persuading  the  men  that  the  management 
really  intends  permanently  to  pay  them  50  or  100 
per  cent  more,  on  any  terms  or  any  conditions,  and 
is  not  concealing  an  attempt  to  find  out  just  how 
much  can  be  done  in  order  to  force  them  to  do  it  at 
the  same  old  wage. 

It  is  not,  as  a  rule,  for  the  good  of  the  workman 
to  overpay  him.  He  is  liable  then  to  work  irregu- 
larly, to  become  dissipated  and  extravagant.  Most 
men  cannot  stand  too  great  or  too  sudden  riches. 
This  is  particularly  true  of  men  of  low  mental  cali- 
ber, and  furnishes  one  of  the  reasons  why  the  in- 
crease on  work  of  a  low  grade  should  not  be  so  large 
as  in  the  case  of  skilled  and  intelligent  workmen. 

The  third  requirement  is  that  the  piece  rate,  when 
once  determined,  shall  not  be  cut,  and  an  assurance 
to  this  effect  should  be  given  to  the  men  to  cover  a 
considerable  period.  The  application  of  this  simple 
principle  alone,  leaving  out  of  count  all  other  de- 
vices for  increasing  the  efficiency  of  an  organization, 
has  often  produced  remarkable  results. 


308  BUSINESS  PEINCIPLES 

Not  long  ago  an  agricultural  manufacturing  con- 
cern had  at  its  head  a  man  who  had  a  ''twist'*  in  the 
direction  of  reorganization.  He  was  constantly  shift- 
ing foremen  and  job-bosses  and  supervisors  from  one 
department  to  another,  constantly  installing  new  sys- 
tems of  cost-accounting  and  stock  routing,  constantly 
setting  up  and  deposing  new  officials  in  office,  in  ac- 
cordance with  whatever  scheme  was  uppermost  in  his 
mind.  These  kaleidoscopic  changes  at  first  worried 
the  men  and  the  officers  considerably;  but  gradually 
they  got  used  to  the  lightning-like  shifts,  and  let  the 
*' chief"  have  his  way  so  far  as  surface  conditions 
went,  but  in  reality  there  was  very  little  change  in 
the  methods  and  processes  of  manufacture.  The 
vagaries  of  the  head  executive  would  ordinarily 
have  plunged  the  establishment  into  ruin  within  a 
year  or  two,  because  no  business  can  work  efficiently 
while  in  a  state  of  constant  topsy-turvydom.  Yet 
the  fact  that  he  rode  his  hobby  only  on  the  surface, 
and  made  no  attempt  to  explore  the  depths,  actually 
kept  the  concern  out  of  hot  water  for  a  long  time. 
Gradually,  however,  the  dividends  began  to  de- 
cline, and  the  directors  became  suspicious  that  all  was 
not  well.  The  executive  was  called  into  a  directors' 
meeting,  and  was  told  that,  while  they  had  not  lost 
confidence  in  him,  they  suspected  that  his  methods 
might  be  partly  responsible  for  the  decline  in  the 
dividend  rate  from  10  to  2  per  cent.  According  to 
all  indications,  there  would  probably  be  a  deficit  soon 
if  ''something  was  not  done  about  it."  They  sug- 
gested that  he  call  in  some  bright  and  energetic  man 
as  assistant  manager,  give  up  his  own  plans  for 


EFFICIENCY  AND  WAGES  309 

awhile,  and  put  faith  in  the  suggestions  of  someone 
from  the  outside. 

The  chief  executive  was  frightened.  But  true  to 
his  tendency  to  do  something  new  and  startling,  he 
called  in  a  young  man  from  an  industrial  school,  ex- 
plained the  situation,  and  told  him  to  go  ahead.  The 
young  manager  looked  over  the  field,  spent  many 
hours  over  the  books  of  the  company,  had  several 
conversations  with  the  workmen  and  foremen,  and 
finally  sized  up  the  situation  pretty  well.  Imagine 
the  surprise  of  everybody,  from  chief  executive 
down,  when  the  next  morning  the  following  notice 
appeared  in  large  type  in  a  prominent  position  in 
each  room  of  the  establishment: 


IMPORTANT     NOTICE 

The  Starr-Roe  Harvester  Company  hereby  guarantee 
that  during  a  period  extending  two  years  from*  date  of 
this  notice,  there  will  be  no  lowering  of  rates  on  piece 
work.  The  company  will  be  glad  to  have  the  workmen 
earn  as  much  as  posiible  during  the  period  covered  by 
this  guarantee. 

(Signed) 

J.  6.  McManus 
July  22,  1908.  Asst.  Manager. 


The  chief  executive  read  the  notice,  and  gasped. 
This  was  a  violation  of  one  of  the  most  sacred  rules 
of  the  art  of  management.  The  profits  of  the  com- 
pany would  be  instantly  eaten  up  in  high  salaries. 
When  the  new  manager,  hastily  summoned,  came 
into  the  private  office,  he  found  his  superior  with 
flushed  face  and  kindling  eye. 

*^This  is  a  pretty  mess,*'  exclaimed  the  chief  ex- 
ecutive, *'are  you  aiming  to  plunge  us  into  ruin?" 


310  BUSINESS  PRINCIPLES 

"Not  at  all,"  was  the  calm  reply.  The  new  man- 
ager pulled  a  bundle  of  papers  from  his  pocket,  drew 
up  a  chair,  and  spread  the  papers  before  the  older 
man. 

"Here  are  the  cuts  in  piece  rates  that  were  made 
last  year,'*  he  continued,  pointing  to  the  figures. 
"Here  are  the  products  made  on  the  cut  rates,  and 
here  are  the  savings  made  by  the  lowering  of  the 
rates.  As  you  can  see,  the  amounts  saved  were  com- 
paratively small.  On  this  other  sheet  is  an  estimate 
of  what  the  company  would  have  made  if  the  output 
had  been  one-third  larger  with  exactly  the  same 
equipment  and  plant,  and  no  cuts  had  been  made. 
At  a  low  estimate  dividends  of  12  per  cent  could 
have  been  declared.  The  promise  not  to  cut  the 
rates  will,  at  the  worst,  cost  the  company  little  or 
nothing;  and  unless  I  am  very  much  mistaken,  will 
increase  the  output  by  more  than  one-third." 

The  chief,  half  convinced,  finally  agreed  to  give 
the  plan  a  trial,  especially  as  the  mischief  had  been 
done  by  the  posting  of  the  notices.  As  the  days  went 
by,  and  salaries  mounted  higher  and  higher,  the  di- 
rectors came  in  and  stormed  and  protested.  The 
manager  was  there  with  his  figures ;  and  as  the  grow- 
ing output  of  the  plant  gave  more  and  more  weight 
to  his  words,  the  opposition  died  down.  At  the  end 
of  six  months  the  output  had  increased  to  nearly 
two-thirds  more  than  normal,  and  a  semi-annual 
dividend  of  10  per  cent  was  declared.  In  addition 
to  this,  a  considerable  amount  was  set  aside  for  sur- 
plus, to  carry  out  plans  for  new  equipment  and  a 
department  of  experiment  and  test. 

From  a  scientific  standpoint,  this  was  a  rather 


EFFICIEJTCY  AND  WAGES  311 

drastic  and  expensive  method  of  increasing  profits. 
The  workmen  who  doubled  and  trebled  their  output 
under  the  new  plan  were  paid  double  and  treble  their 
previous  wages,  though  they  would  have  been  willing 
to  do  the  same  for  half  as  much  again,  or  some 
smaller  proportion  of  increase  in  pay,  if  only  assured 
that  there  would  be  no  reduction  in  the  piece  rates. 
The  manager  of  the  above  concern  is  now  standard- 
izing the  tools  and  equipment,  carrying  on  experi- 
ments to  determine  the  standard  times  for  machin- 
ery, and  making  a  study  of  unit  times,  in  order  to 
make  the  data  so  secured  the  basis  for  a  new  set  of 
prices  on  piece  work  when  the  period  covered  by  the 
guarantee  shall  have  expired.  When  that  has  been 
done,  the  establishment  will  be  equipped  and  organ- 
ized to  realize  all  its  possibilities  in  the  way  of  low 
cost  of  production,  and  large  earning  power. 

So  deeply  engraved  in  the  manufacturer's  mind 
is  the  idea  that  cuts  in  piece  work  are  necessary, 
that  it  is  almost  impossible  to  find  one  who  will  ad- 
mit that  the  plan  is  vicious  in  its  effect  on  the  output 
of  the  workmen.  This  is  partly  due  to  the  fact  that 
the  workmen  are  not,  as  is  often  supposed  by  the- 
orists, wildly  outrageous  when  a  reduction  is  made 
in  a  rate  that  appears  unreasonable.  It  is  not  true, 
as  Mr.  Halsey  indicates,  that  ^'the  workman  of  course 
looks  upon  these  cuts  as  an  exhibition  of  pure  hog- 
gishness  on  the  part  of  the  employer."  The  work- 
man is  as  ready  as  any  one  to  recognize  the  fact  that 
when  a  $10  man  begins  to  earn  $25  or  $30  a  week, 
the  rate  must  be  cut,  because  the  employer  could 
easily  get  another  $10  man  to  do  the  same  work  for 
$12,  say,  with  the  first  man's  experience  to  go  by. 


312  BUSINESS  PRINCIPLES 

But  right  there  is  where  the  hidden  evil  in  the  rate- 
cutting  system  comes  in.  The  workman  knows  that 
the  rate  will  and  must  be  cut  if  he  begins  to  earn  too 
much.  All  he  has  to  do  is  to  take  good  care  that  he 
does  not  earn  too  much.  Then  his  employer  wiU 
have  no  excuse  to  cut  the  rate,  and  he  can  earn  his 
little  salary  at  an  easy  gait  instead  of  earning  the 
same  amount  at  a  fast  one. 

This  is  the  side  of  the  situation  that  employers 
cannot  see.  Their  failure  to  realize  the  employees 
interest  in  this  regard  is  responsible  for  much  of 
the  topsy-turvey  advice  that  is  often  printed  by  man- 
agers who  have  had  considerable  experience  in  han- 
dling men,  but  whose  outlook  on  the  situation  is  con- 
fined to  a  plane  above  that  in  which  the  actual  work- 
ers dwell.  Thus  we  find  writers  in  business  maga- 
zines maintaining  that  the  piece-rate  system  is  all 
right  as  it  is,  if  care  is  exercised  in  handling  it;  that 
too  sudden  slicing  off  of  the  price  is  what  causes 
trouble;  and  that  there  will  be  no  dissatisfaction  on 
the  part  of  the  laborers  if  the  desired  cut  is  made 
gradually  and  moderately,  step  by  step,  until  it  has 
been  reduced  to  the  necessary  point. 

Very  true,  the  laborer  will  not  complain  under 
these  circumstances.  And  what  is  this  **  necessary 
point"?  Who  decides  it?  The  laborer  himself, 
ninety-nine  times  out  of  a  hundred!  When  he  thinks 
that  the  cuts,  made  moderately  and  gradually,  have 
gone  far  enough  to  satisfy  the  employer  and  to  keep 
him  from  dying  of  ennui  while  on  the  job,  he  puts 
a  stop  to  further  cuts  by  failing  to  earn  more  than 
his  average  rate  of  pay.  Thus  on  the  insulating  of 
the  induction  coils  above  referred  to,  on  which  the 


EFFICIENCY  AND  WAGES  313 

price  was  ten  cents  a  piece;  the  first  man  on  this 
job  did  the  work  in  fifty  minutes,  and  the  company 
set  a  rate  of  18  cents  on  the  work.  Then  the  work- 
man reduced  the  time  to  forty-five  minutes,  and  the 
price  was  reduced  to  15  cents.  Thus  gradually  the 
times,  as  handed  in  by  the  workmen,  were  reduced 
to  thirty  minutes,  and  the  price  was  cut  to  10  cents. 
At  that  point  the  operators  decided  that  price  cut- 
ting had  gone  far  enough,  and  carefully  refrained 
from  earning  more  than  20  cents  an  hour  on  them. 
The  management  saw  that  three  cuts  had  already 
been  made,  that  the  records  showed  a  fairly  average 
time  of  thirty  minutes,  and  decided  that  the  mini- 
mum or  "necessary  point"  had  been  reached.  As 
we  have  seen,  the  workmen  took  good  care  to  see  that 
their  employer  should  continue  happy  in  that  belief, 
though,  as  a  matter  of  fact,  neither  skill  nor  experi- 
ence was  required  to  do  the  work  in  one-fifth  of 
the  time  supposed  to  be  the  minimum.  This  mini- 
mum, fondly  supposed  by  the  manager  to  have  been 
reached  by  his  skill  in  handling  piece-rates,  was 
really  decided  and  maintained  by  the  workmen  in 
their  own  interest. 

These  very  cuts  in  the  piece  rates  had  been  fore- 
seen and  provided  for  by  the  workmen,  and  therefore 
aroused  no  opposition.  The  men  knew  that  the  man- 
agement would  not  be  satisfied  until  the  rate  had 
been  cut  a  few  times.  All  they  had  to  do  was  to 
allow  a  sufficient  margin  on  the  first  few  records. 
The  case  is  similar  to  that  of  a  horse  dealer  who, 
wishing  to  sell  a  horse  for  ^ve  times  what  it  was 
worth,  first  named  a  price  over  eight  times  its  real 
value.    The  prospective  buyer,  when  he  had  beaten 


314  BUSINESS  PRINCIPLES 

down  the  price  to  five  times  the  horse  ^s  value, 
thought  he  had  thereby  procured  a  bargain.  The 
employer,  finding  that  his  men  present  little  real 
opposition  to  the  first  two  or  three  cuts  in  the  price, 
concludes  that  the  way  to  get  a  minimum  bargain 
price  is  to  cut  down  the  rate,  **  moderately,  step  by 
step,  to  the  necessary  point." 

But  there  is  another  and  deeper  reason  for  piece 
rate  cutting,  besides  the  fact  that  the  employer 
thinks  that  it  can  be  done  without  any  evil  effects. 
This  reason  is  ably  set  forth  by  Mr.  Halsey  as  one 
of  the  faults  of  the  system: 

**  While  the  employer  may  take  undue  advantage 
in  this  way,"  (that  is,  may  ''nibble"  at  the  rate  when 
there  is  no  necessity  for  it),  "the  fact  remains  that  if 
he  does  not  make  the  cuts  he  will  eventually  do  it 
from  necessity,  for  it  can  be  shown  that  these  cuts 
are  an  integral  part  of  the  piece  work  plan,  which 
can  no  more  be  operated  without  them  than  a  wind- 
mill can  be  operated  without  wind,  and  for  the  reason 
that,  as  years  go  by,  the  whole  tendency  of  prices  is 
downward.  There  are,  of  course,  periods  of  advanc- 
ing prices,  but  they  are  short-lived,  and  are  nothing 
but  incoming  waves  of  the  receding  tide.  The  tend- 
ency through  a  series  of  years  is  downward  and  this 
must  be  so.  It  may  also  be  said  that  this  is  what 
industrial  civilization  is  for — ^to  make  things  cheaper. 
The  whole  industrial  world  is  engaged  in  a  ceaseless 
effort  to  reduce  costs,  in  order  to  reduce  prices;  and 
with  so  much  effort  it  would  be  strange  if  there  were 
not  some  success.  With  this  future  of  falling  prices 
before  him,  no  manufacturer  can  contemplate  paying 
the  same  piece  rates  ten  years  hence,  that  he  pays 


EFFICIENCY  AND  WAGES  315 

to-day.  In  normal  times,  most  manufacturing  enter- 
prises are  conducted  on  a  small  margin  of  profit; 
and  with  a  future  of  falling  prices  before  him,  no 
manufacturer  can  continue  to  pay  for  his  work  ma- 
terially more  per  piece  than  his  competitors  pay. 
The  simple  fact  is  that  uncut  piece  rates  lead  to 
rates  of  wages  which,  under  conditions  of  competi- 
tion between  manufacturers,  cannot  be  maintained." 

It  may  easily  be  agreed  that  this  line  of  rea- 
soning applies  to  any  method  of  paying  labor, 
since  the  tendency  of  everything  manufactured 
is  toward  a  reduction  of  cost,  and  therefore  the 
labor  cost  on  all  articles  must  be  reduced  as  time 
goes  on.  But  on  examination  of  the  statistics 
for  wages  and  prices,  we  find  a  strange  anomaly. 
A  glance  at  the  figures  giving  the  prices  of  manu- 
factured articles  shows,  as  above  stated,  that  there 
has  been  for  the  past  forty  years  a  gradual  but 
continuous  reduction  in  price,  and  presumably  a  cor- 
responding reduction  in  the  labor  cost  of  manufac- 
turing. But  do  the  wages  statistics  tell  the  same 
story?  No;  the  average  wage  for  all  classes  of  labor 
has  risen  as  steadily  as  prices  have  fallen.  In  other 
words,  the  decrease  in  cost  has  not  been  accompanied 
by  a  corresponding  decrease  in  wages.  It  has  been 
accomplished  by  a  steady  improvement  in  industrial 
organization  and  methods,  by  new  and  better  machin- 
ery, by  greater  division  of  labor,  by  a  steady  increase 
in  the  application  of  methods  by  means  of  which 
the  laborer  has  been  enabled  to  enlarge  his  output 
without  any  greater  effort  on  his  part. 

But  this  evolution  has  had  a  particularly  evil  ef- 
fect in  inducing  systematic  soldiering  on  piece  work 


316  BUSINESS  PEINCIPLES 

and  in  furtliering  a  costly  policy  on  the  part  of  manu- 
facturers with  regard  to  the  management  of  this  kind 
of  work.  When  a  man  employed  by  the  day  is  given 
a  new  machine,  or  shown  a  new  method  by  which 
his  output  may  be  increased  to  double  what  is  was 
before,  he  has  little  interest  in  the  amount  of  his 
output;  and  in  the  absence  of  any  incentive  to  soldier 
more  on  the  new  work  than  he  soldiered  in  the  past, 
he  will  exert  himself  to  about  the  same  extent,  and 
his  output  will  be  about  doubled. 

But  in  the  case  of  new  methods  or  machinery  with 
piece  rates,  the  workman  keeps  a  very  close  eye  on 
the  amount  of  his  output.  It  is  to  his  interest  to 
soldier  as  much  as  he  possibly  can  for  the  first  few 
times,  and  to  conceal  in  every  possible  manner  the 
extent  to  which  the  new  method  will  really  increase 
the  output.  The  lower  labor  cost  on  new  jobs,  in  the 
case  of  day  work,  does  not  appeal  vitally  to  the  work- 
man as  a  method  of  inducing  him  to  do  more  at  the 
same  wage.  On  piece  work,  the  actual  definite  cut  in 
the  price  per  piece  is  full  of  meaning  to  the  work- 
man. Having  seen  one  cut  made,  he  does  not  know 
definitely  when  another  cut  may  be  forthcoming,  but 
he  knows  that  it  will  come  if  he  begins  to  earn  too 
much. 

The  employer,  having  made  a  reduction  when  the 
new  process  was  introduced,  and  seeing  so  plainly 
the  saving  in  the  labor  cost  per  piece  from  this  action, 
does  not  make  any  distinction  between  a  cut  justified 
by  more  efficient  and  easier  methods,  and  one  made 
because  he  thinks  the  workman  will  "stand  for  it." 
Failure  to  make  the  distinction,  leads  to  the  fatal 
policy  of  "gradual  and  moderate  cuts  to  the  neces- 


EFFICIENCY  AND  WAGES  317 

sary  point."  The  workman,  knowing  that  the  man- 
agement has  placed  no  definite  limit  on  the  number 
or  extent  of  the  reductions  that  may  be  made,  is 
forced  to  protect  his  interests  by  concealing  the 
amoimt  of  work  that  may  be  done. 

We  have  seen  that  the  nature  of  industrial  prog- 
ress is  toward  lowering  of  prices,  and  that  the  intro- 
duction of  new  methods  of  machining,  handling,  and 
so  on  must  increase  the  output  per  workman.  This 
brings  it  about  that,  under  conditions  of  industrial 
competition,  there  must,  at  times,  be  a  reduction  in 
piece  rates.  But  the  policy  of  cutting  rates  has  just 
been  shown  to  be  productive  of  every  form  of  sol- 
diering, and  of  the  systematic  limitation  of  output 
on  the  part  of  the  workman.  Are  we  then  caught  in 
a  labyrinthine  maze?  Must  we  run  around  in  a 
circle,  arriving  nowhere  *?  Not  at  all.  A  simple,  easy, 
and  practical  way  out  of  the  difficulty  is  to  be  found 
by  placing  some  clean-edged,  definite  limit  on  the 
cutting  of  piece  rates. 

This  may  be  done  in  one  of  two  ways.  In  the 
case  of  the  agricultural  manufacturing  company  cited 
above,  the  manager  accomplished  the  desired  result 
by  promising  that  there  would  be  no  reduction  in 
piece  rates  for  a  period  of  two  years.  This  policy 
left  the  workmen  free  to  earn  as  much  as  they 
pleased,  without  fear  of  having  to  do  more  work  for 
the  same  pay  for  a  length  of  time  sufficient  to  take 
from  them  all  motive  to  soldiering.  Some  of  the 
best-managed  establishments  in  the  country  are  now 
adopting  this  policy,  guaranteeing  the  workmen 
against  reductions  for  a  shorter  or  longer  period  of 
time.    While  it  is  true  that  no  manufacturer  could 


318  BUSINESS  PRINCIPLES 

face  the  prospect  of  paying  the  same  piece  rates  ten 
years  hence  that  he  pays  to-day,  he  is  entirely  safe  in 
the  majority  of  cases,  in  making  a  guarantee  to  cover 
one  or  two  years.  By  strictly  keeping  faith  with  his 
men  during  the  time  period  stated,  the  employer  will 
have  no  difficulty  at  the  expiration  of  the  guarantee 
in  making  a  new  adjustment.  The  new  arrangement 
may  be  based  partly  on  the  improvements  in  methods 
and  processes  that  have  taken  place  during  the 
period,  and  partly  on  the  records  that  have  been 
made  by  the  workmen.  When  adjustment  has  been 
completed,  a  new  guarantee  of  freedom  from  cuts  for 
another  definite  period  should  be  made. 

It  may  be  said  that  any  attempt  at  readjustment 
will  be  met  by  a  storm  of  protest.  The  ten-dollar 
workman,  who  has  been  earning  30  dollars  a  week 
right  along,  might  object  strenuously  to  having  rates 
cut  so  that  he  will  be  able  to  earn  only  15  or  20 
dollars.  Yet  the  situation  in  this  case  is  far  different, 
both  practically  and  theoretically,  from  that  where 
a  policy  of  continuous  and  gradual  reduction  is  pur- 
sued. The  workman  is  not  unreasonable  in  this  mat- 
ter, and  keenly  appreciates  straight  dealing  and  fair 
play.  If  he  has  been  earning  30  dollars  for  work  that 
his  employer  could  get  another  man  to  do  for  12  or 
15  (after  the  first  has  reached  his  maximum  speed), 
he  will  thank  his  lucky  stars  that  the  employer  has 
kept  his  word  and  allowed  him  to  earn  big  wages  for 
so  long  a  period.  When  the  one  or  two  year  period 
is  up,  he  cannot  consider  a  readjustment  unfair,  be- 
cause he  has  been  sufficiently  advised  that  the  change 
would  come  at  just  that  time.  And  with  his  past 
high  records  and  large  earnings  as  evidence  that  the 


EFFICIENCY  AND  WAGES  319 

rates  are  too  high,  he  cannot  conceal  the  amount  of 
time  in  which  the  work  can  be  done. 

But  the  employer  must  remember  that  it  is 
neither  fair  dealing  nor  sound  policy  to  cut  the  rates 
so  that  at  his  maximum  speed  (and  by  maximum  we 
mean  the  largest  output  consistent  with  good  health 
and  good  workmanship)  the  workman  will  earn  no 
more  than  he  did  at  his  old  slovenly  gait.  It  is  not 
fair  dealing,  because  when  the  laborer  is  working 
harder  he  should  be  paid  more.  If  the  ten-dollar 
man,  even  at  the  end  of  two  years,  has  his  rates  cut 
so  that  he  can  earn  only  10  dollars  again,  the  guaran- 
tee policy  becomes  nothing  more  than  an  imder- 
handed  device  to  induce  the  workman  to  toil  three 
times  as  hard  for  the  same  pay  in  the  long  run.  It 
is  not  sound  policy,  because  a  good  round  sum  in 
addition  to  his  ordinary  pay  is  necessary  to  induce 
a  man  to  put  forth  his  best  efforts.  The  ten-dollar 
man  will  not  do  his  best  for  10  dollars.  He  may  not 
do  it  for  12  or  14  or  even  15  dollars  a  week.  Rather 
than  work  at  his  maximum  for  12  dollars,  he  would 
probably  prefer  to  hire  out  to  somebody  else  who 
will  only  pay  him  10  but  will  allow  him  to  take  his 
own  time.  But  if  still  allowed  to  earn  15  to  20  dol- 
lars at  the  new  rates,  as  the  necessities  of  the  case 
may  require,  the  increase  from  50  to  100  per  cent 
over  what  he  could  make  elsewhere,  an  amount  which 
he  knows  from  past  performances  he  can  earn,  wiU 
be  sufficient  to  keep  him,  and  will  still  induce  him  to 
do  his  best. 

It  is  not  urged  that  the  foregoing  plan  is  the  most 
economical  in  all  cases,  or  even  in  the  average  case. 
It  has,  however,  the  merit  of  extreme  simplicity;  and 


320  BUSINESS  PEINCIPLES 

wherever  it  has  been  given  even  a  fair  trial,  it  has 
effected  tremendous  savings  in  production  costs. 
Scientifically  speaking,  it  is  a  rather  expensive  and 
roundabout  method  of  arriving  at  the  goal  of  maxi- 
mmn  output  at  lowest  cost.  The  guarantee  plan  in- 
volves paying  a  large  number  of  workmen,  for  a  con- 
siderable period,  possibly  twice  as  much  as  is  neces- 
sary to  induce  them  to  do  their  best  work.  The  ten- 
dollar  man  would  do  his  best  for  fifteen,  but  who  is 
earning  thirty,  cannot  be  touched  until  the  guaran- 
tee period  is  over.  Moreover,  as  we  have  seen  in 
the  case  of  machine  operations,  the  workman  cannot, 
alone  and  unaided,  realize  the  maximum  possibilities 
of  efficient  production,  because  he  knows  nothing  of 
the  problem  of  finding  out  the  best  tools,  the  best 
feed  and  speed  and  driving  power.  Even  if  under 
the  greatest  stimulus  possible  to  increase  his  output, 
he  can  only  hasten  his  old  wasteful  methods. 

The  most  economical  method  of  reducing  costs 
under  favorable  conditions  is  to  establish  a  depart- 
ment of  tests  and  experiments,  find  out  the  standard 
times  for  each  operation,  make  out  instruction  cards, 
and  put  in  the  new  processes  at  30  to  100  per  cent 
increase  in  pay,  as  fast  as  they  can  be  introduced. 
But  all  this  takes  time,  and  conditions  may  be  far 
from  favorable.  It  may  be  difficult  to  get  the  proper 
men  for  carrying  on  the  experiments;  the  manage- 
ment may  be  so  embarrassed  financially  that  it  could 
not  undergo  the  expense  of  establishing  a  new  de- 
partment, hiring  high  priced  men  to  make  tests,  and 
buying  standard  tools  and  equipment,  until  larger 
earnings  provide  it  with  more  funds ;  the  men  may  be 
extremely  suspicious  of  the  new  plan,  and  may  op- 


EFFICIENCY  AND  WAGES  321 

pose  it  so  effectually  that  a  long,  tedious  campaign 
of  education  will  be  necessary  before  the  most  effi- 
cient methods  can  be  installed.  In  such  cases,  the 
guarantee  plan  will  often  prove  a  most  effective  first 
step.  It  costs  absolutely  nothing  to  inaugurate,  and 
is  so  simple  that  a  child  can  understand  it.  It 
arouses  no  opposition.  It  begins  to  earn  money  from 
the  start.  Morover,  it  oftens  paves  the  way  for  an 
easy  introduction  of  standard  times  and  instruction 
cards. 

When  the  workman  is  endeavoring  to  conceal  the 
time  in  which  a  job  can  be  done,  in  order  to  avoid  a 
cut  in  the  rate,  any  attempt  to  introduce  a  system 
that  will  practically  force  him  to  work  at  his  maxi- 
mum will  be  met  by  all  the  opposition  he  can  muster. 
The  promise  of  a  50  per  cent  increase  in  pay  if  he 
makes  the  standard  time,  appears  to  him  at  first  as 
a  deceptive  bait,  because  he  will  not  be  convinced 
that  standard  time  can  be  made  until  he  has  seen 
it  done  over  and  over  again.  But  under  the  guaran- 
tee system  the  workman  is  not  under  any  incentive 
to  go  slow  on  his  work.  He  is  anxious  to  secure 
as  large  an  output  as  possible.  If,  now,  his  foreman 
comes  to  him  and  tells  him  that  the  department  of 
tests  has  discovered  a  number  of  improvements  on 
his  old  methods  that  will  enable  him  to  save  ten 
or  twenty  minutes  on  each  job,  by  closely  following 
instructions,  he  will  be  eager  to  adopt  the  new  plan, 
because  he  is  protected  against  a  cut  by  the  time 
guarantee. 

Another  method  of  securing  the  reduction  of  price 
rates  that  industrial  progress  and  competition  make 


322  BUSINESS  PRINCIPLES 

necessary,  and  yet  of  avoiding  the  fatal  policy  of 
general  and  indiscriminate  rate  cutting,  is  to  guaran- 
tee the  workmen  against  reductions  unless  there  be 
some  radical  change  in  the  mthods,  progress,  or  ma- 
chinery, such  as  would  justify  a  readjustment.  It 
is  easily  seen  that  this  plan  is  not  so  simple  or  so 
easy  of  application  as  the  foregoing,  nor  is  it  of 
special  value  as  a  ** first  aid  to  the  injured."  It  can- 
not be  satisfactorily  adopted  until  the  minimum 
standard  times  for  all  operations  have  been  deter- 
mined and  installed,  and  the  piece  rates  adjusted  to 
the  amounts  requisite  to  secure  the  desired  results. 

If  such  a  plan  (which  we  may  call  the  proviso 
guarantee,  to  distinguish  it  from  the  time  guarantee 
above  described)  were  adopted  as  a  first  step,  the 
workmen  would  regard  it  as  a  farce.  They  would  feel 
that  the  employer  could  use  the  proviso  as  a  loophole 
of  escape  from  any  rate  he  wished  to  change,  and 
there  would  be  no  attempt  to  make  larger  wages 
under  cover  of  so  flimsy  a  protection.  Even  if  the 
production  were  increased,  the  employer  would  be 
prevented  from  making  any  readjustment  of  rates 
except  those  justified  by  a  considerable  improvement 
in  methods  or  machinery. 

The  proviso  guarantee  has  this  advantage,  how- 
ever, that  when  conditions  are  such  as  to  enable  it  to 
work  properly,  it  allows  an  immediate  adjustment 
of  pay  to  the  conditions  of  industrial  progress.  If 
it  is  to  work  properly,  the  employes  must  have  im- 
plicit confidence  that  the  management  will  not  use 
the  proviso  unfairly.  For  this  reason,  the  proviso 
guarantee  is  particularly  well  fitted  to  follow  a  pre- 
vious time  guarantee,  if  the  provisions  of  the  latter 


EFFICIENCY  AND  WAGES  323 

have  been  honestly  observed  by  the  employer.  The 
workmen  by  that  time  will  have  become  convinced 
that  the  employer  is  anxious  to  give  them  a  **  square 
deal,"  that  he  is  not  roaming  around  seeking  what 
piece  rate  he  may  devour,  and  that  he  wiU  make  only 
such  reductions  as  are  clearly  justified  by  improve- 
ment in  tools  or  in  the  processes  of  manufacture. 


CHAPTER  Xm. 

EFFICIENCY  AND  WAGES;  THE  PREMIUM 
AND    CONTRACT   PLANS. 

In  the  preceding  chapters  we  have  seen  that, 
theoretically  speaking,  the  day  rate  and  piece  rate 
plans  affect  in  directly  opposite  ways  the  interests 
of  employer  and  employe  in  the  amount  of  out- 
put from  a  given  plant  and  labor  force.  Under  the 
day  rate  system  the  workman  has  no  direct  interest 
in  the  rapidity  of  his  output,  and  can  be  spurred  to 
higher  speed  only  by  applying  a  strong  indirect  in- 
terest in  the  form  of  definite  promise  of  higher  pay 
or  of  promotion  in  case  he  shall  reach  a  certain 
standard  of  output  or  of  workmanship.  With  the 
piece-rate  system  the  employer  has  ostensibly  no 
direct  interest  in  larger  output,  because  his  labor 
cost  remains  the  same  per  unit  of  product.  But  in 
this  latter  case  there  are  several  side  issues  that 
obscure  and  complicate  the  problem. 

First,  the  employer's  indirect  interest  in  enlarged 
output  per  unit  of  labor  is  very  great ;  in  fact,  much 
greater  than  the  employer  himself  usually  supposes. 
The  indirect  cost,  for  heat,  light,  and  power,  for 
interest  on  plant,  machines,  and  equipment,  for  sell- 
ing organization  and  slow  movement  of  stock  and 
slow  deliveries,  comes  to  so  large  an  amount  that  the 
interest  of  the  employer  in  rapid  production,  though 
indirect,  is  tremendous. 

325 


326  BUSINESS  PEINCIPLES 

Second,  the  workman  has  not,  in  the  vast  major- 
ity of  cases,  nearly  so  direct  an  interest  in  increasing 
his  speed  of  production  as  the  piece-rate  theory 
would  lead  us  to  think,  because  he  knows  that  if  his 
earnings  amount  up  to  a  certain  point,  the  rate  wUl 
be  cut.  His  choice  therefore  lies  between  an  easy 
gait  and  a  fast  one,  at  a  certain  fairly  fixed  rate  of 
pay  per  day. 

Third,  the  cutting  of  rates  on  piece-work  is  an 
integral  part  of  our  industrial  system,  because  im- 
provements in  machinery  and  processes  of  manufac- 
ture are  going  on  at  all  times;  prices  are  going  down; 
and  if  the  rates  were  never  cut,  the  manufacturer  in 
a  few  years  would  find  his  costs  of  production  greater 
than  his  selling  prices.  The  fact  that  piece  rates 
must  be  cut  sometimes,  and  that  in  each  particular 
case  where  a  cut  is  made  there  is  an  obvious  saving 
in  the  labor  cost  of  the  article  manufactured,  has 
led  employers  into  the  policy  of  reducing  rates  on 
every  possible  occasion,  disregarding  the  fact  that 
this  policy  offers  every  inducement  to  the  workman 
to  slow  up  on  his  production,  to  conceal  the  amount 
of  time  it  takes  to  do  a  job,  and  to  further  his 
interests  not  by  earning  more  money,  since  this  is 
denied  him,  but  by  working  at  his  leisure. 

Several  methods  of  avoiding  the  apparent  dead- 
lock between  the  interests  of  the  employer  and  those 
of  the  employe  have  been  considered.  The  simplest 
of  these  is  the  time  guarantee :  a  promise  on  the  part 
of  the  employer  that  the  rates  on  piece  work  will 
not  be  reduced  for  a  period  of  time  long  enough  to 
induce  the  workman  to  give  up  his  apparent  advan- 
tage in  concealing  his  rate  of  output  for  the  sake  of 


EFFICIENCY  AND  WAGES  327 

the  high  wages  he  can  make  during  the  period  of  the 
guarantee.  If  a  man  knows  that  he  can  earn  double 
or  treble  wages  for  a  period  of,  say  two  years,  al- 
though he  knows  that  a  re-adjustment  will  be  made 
at  the  end  of  that  time,  he  will  seize  the  present 
gains,  and  let  the  future  take  care  of  itself.  Even  if 
he  thinks  the  employer  will  take  advantage  of  his 
high  records  to  cut  the  rates,  so  that  he  will  be 
doing  three  times  as  much  work  for  the  same  pay  as 
before,  he  will  at  least  have  two  years  of  high  pay 
to  his  credit,  and  at  the  worst  he  can  hire  out  some- 
where else,  where  the  old  pay  is  linked  with  the  old 
rate  of  output.  If  the  guarantee  is  not  made  for  a 
long  enough  period,  the  plan  will  not  be  effective. 
In  this  case  the  workman  will  put  his  future  advan- 
tage ahead  of  present  gains,  and  will  soldier  on  his 
work  as  before,  in  order  that  when  the  readjust- 
ment is  made  the  employer  will  have  no  basis  of 
high  records  on  which  to  cut  the  rate.  For  this  and 
other  reasons,  the  time  guarantee  plan  is  rather  ex- 
pensive to  employers.  It  is  expensive,  not  in  the 
sense  that  it  wiU  not  effect  immense  savings  in  costs 
over  the  old  plan,  but  in  that  it  involves  paying 
much  more  than  is  absolutely  necessary  to  produce 
the  desired  results. 

To  induce  a  workman  to  exert  his  best  efforts,  it 
is  not  necessary,  as  we  have  seen,  to  pay  him  an 
amount  directly  proportioned  to  the  results  he 
achieves,  provided  only  there  is  a  satisfactory  in- 
crease of  pay  which  the  employe  need  not  fear  will 
be  reduced.  A  man  who  is  turning  out  only  one- 
third  or  one-fourth  as  much  as  would  be  possible, 
— and  soldiering  to  this  extent  seems  to  be  the  rule 


328  BUSINESS  PEINCIPLES 

rather  than  the  exception, —  it  is  not  necessary  to 
treble  or  quadruple  his  pay  in  order  to  induce  him 
to  turn  out  three  or  four  times  as  much  as  before. 
He  will  do  his  best  for  an  increase  of  anywhere  from 
thirty  to  one  hundred  per  cent  over  his  average  pay, 
provided  only  the  increase  is  permanent.  Thus  the 
simple  time  guarantee  plan  is  expensive  to  em- 
ployers; for  while  it  will  effect  enormous  savings  in 
the  indirect  cost  of  production,  all  the  direct  gains 
from  larger  output  go  to  the  employes.  Where  this 
plan  is  put  through,  the  employer  finds  himself  bound 
for  a  long  period  to  pay  his  workmen  perhaps  three 
or  four  times  their  previous  wages,  more  than  double 
the  amounts  that  a  more  scientific  arrangement  would 
find  necessary,  to  bring  about  the  same  results. 

The  time-guarantee  plan  has  the  advantages  of 
extreme  simplicity  and  instant  effectiveness.  While 
it  is  expensive,  there  are  conditions  under  which  it 
will  be  preferable  to  any  other  method.  It  is  obvious, 
however,  that  part  of  the  expense  connected  with  this 
plan  would  be  done  away  with  by  some  arrangement 
by  which  the  direct  gains  from  larger  output  could 
be  divided  between  the  employer  and  the  employe. 
Such  an  arrangement  can  be  found  in  what  is  known 
as  the  premium  plan  of  paying  for  labor.  To  under- 
stand this  plan,  we  cannot  do  better  than  to  quote 
from  Mr.  Halsey,  in  the  article  above  referred  to. 

"To  understand  this,  suppose  that  a  piece  of  work 
has  been  done  upon  the  day's-work  plan,  and  that  it 
is  proposed  to  change  it  to  the  premium  plan.  The 
time  which  it  has  required  is  determined,  and  the 
workman,  who  is  still  paid  the  old  day  rate,  is  told 
that  if  he  will  reduce  that  time  he  will,  in  addition 


EFFICIENCY  AND  WAGES  329 

to  his  daily  wages,  be  paid  a  premium  for  each  hour 
or  part  of  an  hour  by  which  he  red  aces  the  time,  this 
premium  per  hour  being  less  than  his  hourly  rate 
of  wages.  Please  note  this,  as  it  is  by  this  device 
that  the  division  of  the  gains  is  made.  If  he  objects, 
he  is  simply  told,  *Very  well.  Try  or  not,  as  you 
think  best;  there  is  the  work  and  the  offer,  and  the 
premium  is  ready  whenever  you  have  earned  it  .  .' 
It  is  of  course  expected,  and  usually  found,  that  with 
this  reward  before  him  the  workman  will  sooner  or 
later  endeavor  to  increase,  and  will  succeed  in  in- 
creasing, his  output. 

**To  gather  the  exact  workings  of  the  plan,  as- 
sume a  concrete  case.  A  workman  is  paid,  say,  $3.00 
per  day,  and  produces  one  piece  of  a  kind  per  day, 
— that  is,  in  10  hours.  He  is  told  that  he  will  con- 
tinue to  be  paid  his  $3.00  a  day  as  before;  but  that 
if  he  will  reduce  the  time  on  the  piece,  he  will  be 
paid,  in  addition  to  his  wages,  a  premium  of  10  cents 
for  each  hour  saved.  If  he  reduces  the  time  by  an 
hour,  that  hour  represents  in  money  value  a  gross 
saving  of  30  cents.  Ten  cents  of  this  amount  is  paid 
him  as  a  premium,  leaving  the  remaining  20  cents 
in  the  employer's  possession,  this  sum  making  itself 
manifest  in  the  reduced  cost  of  the  work.  If  the 
workman  goes  on  reducing  the  time  in  which  the 
piece  is  made,  the  same  process  is  repeated,  each 
hour  saved  resulting  in  an  increase  in  the  workman's 
wages  of  10  cents,  and  in  a  reduced  cost  of  the  piece 
of  20  cents.  In  other  words,  the  wages  go  up  and  the 
costs  go  down  simultaneously,  this  apparently  para- 
doxical result  coming  about  from  the  fact  that  the 
gross  time  saved  is  divided  between  employer  and 


330  BUSINESS  PEINCIPLES 

employe,  part  of  it  going  to  increase  the  wages  of 
the  latter,  and  the  remainder  going  to  reduce  the  cost 
to  the  former.  This  is  shown  in  the  accompanying 
table,  which,  for  purposes  of  illustration,  is  extended 
until  the  workman  has  doubled  his  output,  in  which 
case  the  wages  cost  of  the  work  has  gone  down  from 
$3.00  to  $2.00,  while  the  workman's  earnings  per  day 
have  advanced  from  $3.00  to  $4.00. 

THE  WORKINGS  OF  THE  PREMIUM  PLAN. 


1. 

2. 

3. 

4. 

5. 

Total  cost 

Worwman's  earn- 

Time 

Wages  per 

of  work,  Col. 

ing!  per  hour, 

consumed, 

piece 

Premium. 

2+3. 

Col 

4-M. 

10  kours 

$3.00 

$0.00 

$3.00 

$0.30 

9    «' 

2.70 

.10 

2.80 

.311 

8    •« 

2.40 

.20 

2.60 

.325 

7    '* 

2.10 

.80 

2.40 

.343 

6    '* 

1.80 

.40 

2.40 

.366 

5    " 

1.50 

.50 

2.00 

.40 

There  is,  of  course,  a  considerable  gain  to  the 
employer,  due  to  the  increased  production  from  a 
given  plant,  since  the  secondary  costs  of  production, 
— the  expense  items  which  make  up  the  burden,  and 
which  must  be  added  to  the  cost  of  labor  and  material 
in  order  to  obtain  the  ultimate  true  cost, — are  in- 
creased but  little  in  consequence  of  the  intensified 
production." 

It  will  be  seen  at  once  that,  though  this  plan 
starts  out  on  a  basis  of  day's  work,  it  can  easily  be 
adjusted  to  piece  work  as  well,  and  when  fully  under 
way,  really  becomes  a  piece-work  proposition.  Thus 
when  the  workman  has  reached  the  point  where  he 
can  do  the  work  in  five  hours  instead  of  ten,  he  is 
really  paid  $1.50  for  each  job.  If  he  should  reduce 
the  time  to  four  hours,  his  rate  would  be  $1.20  per 


EFFICIENCY  AND  WAGES  831 

piece.  But  this  automatic  cutting  of  the  rate  per 
piece  is  done  entirely  at  the  workman's  option,  and 
is  compensated  for  by  an  increased  rate  of  earnings 
per  hour.  The  fact  that  there  is  no  compulsion  about 
the  plan,  that  the  workman  can  take  it  or  leave  it 
as  he  thinks  best,  is  an  advantage  which  it  enjoys  in 
common  with  the  time  guarantee  system. 

There  are  certain  disadvantages  connected  with 
the  premium  plan,  which  ought  to  be  taken  into  con- 
sideration before  it  is  applied. 

First  of  all,  it  is  not  so  directly  effective  as  the 
time  guarantee  plan.  As  can  easily  be  seen,  there 
is  not  nearly  so  great  an  incentive  to  the  workman 
to  put  forth  his  best  efforts  at  the  start.  Men  who 
have  been  plodding  along,  taking  ten  hours  to  do  a 
piece  of  work,  are  not,  as  a  rule,  fully  aware  of  the 
extent  of  to  which  they  have  been  soldiering.  Just 
as  a  man  who  is  first  introduced  to  piece  work  is 
sure  that  he  cannot  ''make  wages"  at  the  price  set, 
so  a  man  who  has  taken  ten  hours  on  a  job  is  inclined 
to  smile  ironically  at  the  idea  of  there  being  ''any- 
thing in  it"  for  him  when  he  is  offered  only  10  cents 
an  hour  for  each  hour  saved.  He  is  liable  to  think 
that  he  could  save  half  an  hour,  or  at  best  an  hour, 
by  working  particularly  hard,  and  the  prospect  of 
putting  forth  all  this  extra  effort  for  the  sake  of 
5  or  10  cents  does  not  appeal  to  him.  Days,  weeks, 
even  months  may  elapse  before  the  workmen  become 
educated  to  the  real  importance  of  the  opportunity 
that  is  offered  them  to  make  higher  wages  by  this 
plan.  If  the  men  knew  at  the  start  that  they  could 
ultimately  do  in  three  or  four  or  five  hours  the  work 
that  now  takes  ten  hours,  the  prospect  of  a  definite 


332  BUSINESS  PEINCIPLES 

large  amount  of  higher  pay  in  the  future  would  spur 
them  immediately  to  greater  effort;  but  ordinarily 
they  cannot  see  this.  The  result  is,  that  conditions 
may  go  on  for  a  long  time  as  before,  without  any 
advantage  accruing  from  the  adoption  of  the  plan, 
either  to  employer  or  to  employe. 

Parenthetically  it  may  be  noted  that  here  is  illus- 
trated one  of  the  disadvantages  of  not  having  a  de- 
partment of  tests  which  would  make  a  study  of  the 
time  required  to  do  work.  If  it  could  be  pointed 
out  to  the  men  at  the  beginning  that  a  ten-hour  job 
could  be  done  in  three  or  four  hours,  there  would  be 
no  difficulty  in  making  them  see  what  a  premium 
of  even  10  cents  per  hour  saved  would  bring  to  them 
ultimately.  In  the  absence  of  a  time-study  test  de- 
partment, the  simple  time  guarantee  plan  wiU  bring 
better  immediate  results ;  and  where  this  is  of  prime 
importance,  it  will  be  preferred  to  the  other. 

It  might  be  said  that  the  delay  incident  to  the 
smaller  incentive  to  the  workmen  under  the  premium 
plan  can  be  done  away  with  by  increasing  the  pre- 
mium. The  proportion  of  the  gains  which  should 
go  to  the  workman  under  this  plan  will  demand  care- 
ful study  in  all  cases.  Mr.  Halsey  favors  giving  the 
laborer  one-third.  If  the  laborers  were  given  one- 
half,  or  two-thirds,  it  is  undoubtedly  true  that  the 
incentive,  both  immediate  and  ultimate,  would  be 
productive  of  larger  results. 

The  trouble  with  this  plan  is  that  as  time  went 
on,  the  workmen  would  begin  to  earn  so  much  that 
there  would  have  to  be  a  cut  in  the  rates;  in  which 
case  the  premium  plan  would  be  worse,  as  a  perma- 
nent solution  of  the  problem,  than  the  time  guaran- 


EFFICIENCY  AND  WAGES 


333 


tee  with  a  readjustment  at  the  end  of  one  or  two 
years.  It  will  not  secure  the  large  output  at  the 
beginning,  and  the  workmen  will  object  more  to  a 
readjustment  when  they  are  getting  only  part  of  the 
direct  gains  from  larger  output  than  when  they  are 
making  more  obviously  excessive  wages  from  getting 
the  whole.  Any  change  in  the  time  base  on  the  pre- 
mium plan,  after  it  is  once  set,  is  particularly  to  be 
avoided.  Yet  a  premium  that  is  too  large  will  ulti- 
mately bring  a  rate  of  pay  that  is  much  more  than 
necessary  to  induce  the  workman  to  turn  out  the 
maximum.  This  may  be  seen  by  carrying  out  the 
idea  in  Mr.  Halsey's  table  on  the  basis  of  a  premium 
equal  to  one-half  and  two-thirds  of  the  gains  from 
time  saved. 


PREMTUM  OF  ONE-HALF. 


1. 

2. 

3. 

4. 

5. 

Workmen 's 

6. 

Total  cost 

earnings 

Earnings 

Time  con- 

Wages  per 

Premium, 

work,  Col.  2 

per  hr.,  Col. 

per  day, 

flumed,  hrs. 

piece,  dollars. 

dollars. 

and  3,  dollars, 

,     4-i-Col.  1. 

dollars. 

10 

3.00 

0.00 

3.00 

.30 

3.00 

9 

2.70 

.15 

2.85 

.316 

3.16 

8 

2.40 

.30 

2.70 

.331 

3.37 

7 

2.10 

.45 

2.55 

.364 

3.64 

6 

1.80 

.60 

2.40 

.40 

4.00 

5 

1.50 

.75 

2.25 

.45 

4.50 

4 

1.20 

.90 

2.10 

.525 

5.25 

3 

.90 

1.05 

1.95 

.65 

6.50 

PREMIUM  OF  TWO-THIRDS 

1. 

2. 

3. 

4. 

5. 

6. 

W'km'n's  W'km'n's 

Total  cost 

earnings 

earnings 

Time  con- 

Wages  per 

Premium, 

work.  Col.  2 

per  hr..  Col. 

per  day, 

■umed,  hrs. 

piece,  dollars 

dollars 

+3,  dollars 

4-M,  dollars 

dollars 

10 

3.00 

0.00 

3.00 

.30 

3.00 

d 

2.70 

.20 

2.90 

.322 

3.22 

8 

2.40 

.40 

2.80 

.35 

3.50 

7 

2.10 

.60 

2.70 

.386 

4.33 

6 

1.80 

.80 

2.60 

.433 

5.00 

6 

1.50 

1.00 

2.50 

.50 

6.00 

4 

1.20 

1.20 

2.40 

.60 

7.66 

3 

.90 

1.40 

2.30 

.766 

.... 

334  BUSINESS  PEINCIPLES 

It  must  be  understood  that  we  are  not  arguing 
against  the  workman's  receiving  six  or  seven  or 
even  twelve  or  fourteen  dollars  a  day,  in  itself.  If 
the  laborer  is  so  efficient  that  he  earns  these  amounts, 
if  the  employer  can  get  no  other  man  or  men  who 
will  do  the  same  amount  and  quality  of  work  for  less 
money,  the  able  employe  will  deserve  and  can  de- 
mand these  wages.  But  we  have  to  consider  the 
employer's  side  of  the  question,  and  to  secure  an 
adjustment  of  the  wage  that  will  be,  as  nearly  as 
may  be,  satisfactory  to  both  parties.  From  a  prac- 
tical, every-day  business  standpoint,  this  means  that 
the  employer  has  a  right  to  secure  results  at  the 
lowest  reasonable  price, — the  lowest  price,  that  is, 
that  will  pay  the  workman  sufficiently  to  induce  him 
to  do  his  best. 

Under  the  premium  plan,  remember,  there  is  no 
compulsion.  The  workman  will  do  his  best  when  he 
is  paid  enough  to  induce  him  to  do  so ;  and  when  that 
amount  is  paid,  he  is  satisfied.  To  pay  more,  is 
superfluous. 

The  employer  who  goes  beyond  the  necessary 
point  has  a  perfect  right  to  do  so,  just  as  he  has  a 
right  to  give  money  to  a  beggar  in  the  street  or  to 
contribute  to  the  support  of  a  needy  family.  In  such 
cases,  however,  he  is  not  entering  into  a  business 
contract,  but  indulging  in  philanthropic  activities. 
The  case  is  similar  to  that  of  a  man  who  wishes  to 
have  his  barn  painted.  Ordinarily,  he  will  pay  what 
is  necessar}^  to  get  the  work  done.  If  he  wishes  to 
pay  more,  that  is  his  own  lookout;  but  the  excess  is 
philanthropy,  not  business.  He  may,  of  course,  use 
the  power  of  capital  to  force  some  starving  working- 


EFFICIENCY  AND  WAGES  335 

man  to  paint  his  bam  for  one-half  or  two-thirds  the 
current  rate,  just  as  he  may  seize  upon  the  needs 
of  a  body  of  workmen  to  force  them  to  work  for  less 
than  the  average  rate  of  wages  of  their  class.  Such 
a  course  is  to  be  deprecated,  as  it  represents  neither 
justice  to  the  men  nor  soimd  policy,  in  the  long  run, 
on  the  part  of  the  employer. 

Such  instances  are  fortimately  rather  rare  in  this 
country.  The  current  rate  of  wages  for  each  grade 
of  labor  is  fairly  well  fixed,  and  the  average  man 
will  not  work  for  a  less  recompense.  Unfortunately, 
the  average  speed  output  in  most  occupations  is  also 
fairly  well  fixed,  and  at  a  low  figure,  owing  to  the 
almost  universal  inducement  held  out  to  the  men 
to  further  their  interests  by  soldiering  on  their  work. 
The  policy  of  the  enlightened  manufacturer  is  to  pay 
the  current  rate  of  wages,  plus  an  amount  sufficient 
to  induce  the  workmen  to  increase  production  to  the 
maximum. 

The  size  of  the  premium  that  it  is  best  to  pay 
will  depend  upon  the  nature  of  the  work,  the  skill 
and  intelligence  of  the  men,  and,  to  some  extent, 
upon  the  amount  of  soldiering  that  has  been  done  in 
the  past.  Here  we  have  our  schedule  of  additional 
pay  for  workmen  doing  their  best,  discussed  in  the 
previous  chapter,  to  fall  back  on.  If  the  additional 
work  will  not  call  for  any  special  skill  or  severe 
bodily  exertion,  a  premium  of  one-third  should  be 
sufficient.  If  it  calls  for  no  special  skill  or  intelli- 
gence, but  for  a  large  amount  of  physical  and  man- 
ual labor,  the  premium  should  be  one-half.  If  it  calls 
for  both  intelligence  and  hard  work,  a  premium  of 
two-thirds,  or  even  more,  will  be  required. 


336  BUSINESS  PEINCIPLES 

If  the  establishment  has  been  run  at  a  high  state 
of  efficiency  before  the  adoption  of  the  plan,  and  the 
increase  of  output  that  may  be  expected  is  not  con- 
siderable, a  large  premium  will  be  necessary  to  in- 
duce the  workmen  to  put  on  the  extra  steam.  In  a 
case  of  this  kind,  the  premium  plan  is  distinctly  to 
be  preferred  to  the  time-guarantee  plan,  because  the 
large  premium  will  act  as  a  direct  and  immediate 
stimulus  without  much  danger  of  earnings  so  large 
as  to  be  more  than  are  necessary.  If,  on  the  con- 
trary, the  organization  has  been  weak  and  inefficient, 
and  the  amount  of  soldiering  is  large,  the  amount  of 
the  premium  should  be  small.  Otherwise  the  work- 
man will  begin  to  earn  excessive  wages,  and  the  em- 
ployer will  find  himself  paying  more  than  is  neces- 
sary. If  the  rate  is  not  guaranteed,  and  the  pre- 
mium is  large,  the  workmen  will  be  afraid  to  take 
advantage  of  the  higher  wages  offered,  for  fear  of  a 
cut,  as  in  piece-work.  Yet  a  low  premium,  which  in 
most  cases  is  the  only  one  that  will  offer  a  satisfac- 
tory permanent  solution  of  the  problem  of  wages 
and  efficiency,  is  usually  slow  in  securing  results, 
because  the  initial  inducement  appears  to  the  work- 
man to  be  small. 

Another  feature  which  causes  the  time-guarantee 
method  to  be  often  preferred  to  the  premium  plan, 
is  to  be  found  in  the  extreme  simplicity  of  the  for- 
mer. It  is  obvious,  from  all  that  has  been  said,  that 
the  premium  plan  cannot  be  installed  without  careful 
thought  and  consideration.  Every  grade  of  labor, 
and  every  kind  of  work,  will  have  to  be  carefully 
investigated  before  the  proper  amount  of  premium 


EFFICIENCY  AND  WAGES  337 

can  be  decided.  There  are  dangers  to  be  appre- 
hended from  several  soiu^ces,  if  a  mistake  is  made. 

It  need  not  be  pointed  out  that  the  employer 
cannot  hope  to  secure  results  by  constantly  making 
experiments  on  the  workmen  in  an  effort  to  reach 
the  proper  adjustment  ultimately.  The  essence  of 
increased  output  from  the  labor  force  is  larger  pay 
to  the  men,  coupled  with  an  assurance  that  the  in- 
crease in  wage  is  permanent.  Any  shifting  about  of 
time  base  or  premium  is  a  fatal  policy,  whether  the 
rate  of  pay  be  raised  or  lowered.  It  is  not  difficult 
to  see  that  any  lowering  of  the  rates  of  pay  wiU  at 
once  cost  the  management  the  confidence  of  the 
men  in  the  new  plan,  and  lead  to  all  the  unfortunate 
results  of  the  policy  of  cutting  ordinary  piece-rates. 

But  how  about  raising  the  rates?  Some  one  will 
say  that  it  ought  to  be  a  shrewd  and  sound  policy 
to  err  on  the  side  of  smallness  of  premium  and  low- 
ness  of  time  base  at  the  start,  and  gradually  increase 
in  the  amounts  paid.  This  plan  has  two  faults;  it 
will  seciu-e  little  or  no  results  in  the  beginning,  and 
will  secure  bad  results  in  the  end.  One  of  the  faults 
of  the  premium  system  is  that  the  inducement 
offered  to  increase  the  output  appears  small  to  the 
workman  until  he  finds  out,  after  long  experience, 
just  what  he  can  do  and  just  how  much  he  can  earn 
under  it.  If  the  premium  is  purposely  made  too 
small  in  the  first  place,  this  fault  will  be  aggravated. 
The  employer  may  have  to  put  the  premium  up 
almost  at  once  in  order  to  get  any  results  at  all.  If, 
now,  the  workman  observes  that  the  rates  are  being 
gradually  raised,  in  order  to  bring  them  up  to  their 
maximum  output,  they  will  readily  conclude  that  the 


338  BUSINESS  PEINCIPLES 

rates  will  continue  to  go  up  as  long  as  they  stay- 
under  the  maximum.  In  other  words,  a  temptation 
is  offered  to  them  to  keep  their  output  down  as  long 
as  possible,  so  as  to  lead  the  employer  to  put  on  a 
high  rate.  In  the  end,  he  may  be  made  to  think  that 
the  ** necessary"  increase  is  very  much  higher  than 
it  actually  would  be  with  a  fixed,  unvarying  schedule. 

The  policy  of  shifting  rates,  either  up  or  down, 
is  in  itself  a  bad  one.  Change  means  insecurity;  in- 
stability. The  workman  does  not  know  where  he 
stands  now,  nor  what  wiU  happen  to  him  next.  Even 
if  the  changes  are  all  apparently  to  his  interest,  he  is 
Hable  to  think  that  what  can  be  revised  upward  can 
be  easily  revised  downward.  If  the  **  policy  of  the 
house"  is  change,  the  changes  upward  under  one 
superintendent  may  furnish  a  plausible  pretext  for 
changes  downward  under  another.  If  the  time  base 
is  arranged  so  that  the  workman  can  earn  at  least 
the  average  of  his  class,  a  low  premium  that  is  fixed 
is  better  than  a  higher  one  subject  to  constant 
variation. 

The  premium  plan  suffers  some  slight  disadvan- 
tage as  compared  with  the  time-guarantee  method, 
in  that  the  former  is  more  difficult  for  the  workmen 
to  comprehend.  It  stirs  a  man's  imagination  to  re- 
flect that  if  he  does  twice  as  much  work  he  will  get 
twice  as  much  pay;  but  he  will  not  so  easily  compre- 
hend what  it  means  to  him  to  divide  the  gains  from 
the  time  saved  in  the  proportion  of  one-third  to  him- 
self and  two-thirds  to  his  employers.  Workmen  are 
extremely  suspicious  also  of  anything  complex  or 
difficult  to  imderstand,  because  in  too  many  cases 
they  have  emerged  from  twists  and  turns  and  intri- 


EFFICIENCY  AND  WAGES  339 

cate  pay  systems  to  find  themselves  doing  more  work 
for  less  pay. 

Similarly,  from  the  employer's  side,  the  greater 
complexity  of  the  book-keeping  and  accounts  neces- 
sary under  the  premium  plan  may  make  it  less  de- 
sirable than  a  simple  time  guarantee.  The  work- 
men's checks  will  all  have  to  be  changed,  and  a  con- 
siderable increase  in  clerical  work  will  be  involved 
with  the  premium  system.  It  might  take  some  time 
after  the  plan  was  decided  on  to  effect  the  necessary 
changes.  In  the  meantime,  the  plant  is  losing  money 
under  the  old,  inefficient  system.  If  the  need  for 
immediate  results  is  imperative,  the  time-guarantee 
plan  wiU  be  vastly  better  than  nothing,  to  bridge 
over  the  period  during  which  the  more  elaborate  and 
more  efficient  arrangements  are  being  made. 

Another  defect  in  the  premium  plan  is  said  to 
lie  in  the  fact  that  it  imposes  no  penalty  on  the  em- 
ploye for  not  making  good  time.  With  ordinary 
piece-work,  the  penalty  for  slow  work  lies,  of  course, 
in  the  fact  that  the  wages  decline  in  exact  proportion 
to  the  lack  of  skill  or  to  the  laziness  of  the  workman. 
On  the  premium  basis,  the  employe  is  guaranteed  at 
least  his  usual  wage,  and  as  much  more  as  he  can 
earn  by  extra  effort.  If  the  time  base  is  fairly  set, 
and  the  premium  is  at  all  attractive,  there  will  be  no 
need  of  a  penalty  to  induce  the  workman  to  come  up 
to  his  usual  output,  and  to  exceed  it,  in  order  to  in- 
crease his  ordinary  wage.  In  ordinary  cases,  there- 
fore, this  is  not  a  fault  to  be  considered  as  serious. 
The  same  fault  is  to  be  found  in  ordinary  day  work, 
where,  of  course,  there  is  no  direct  or  immediate 
penalty  for  slow  work.    In  both  cases  there  is  an 


840  BUSINESS  PKINCIPLES 

indirect  penalty,  in  that  the  poor  or  slovenly  work- 
man is  in  danger  of  discharge.  In  short,  ordinarily 
the  fact  that  the  time  limit  is  practically  a  guarantee 
of  a  day's  wage  under  any  reasonable  circumstances, 
is  a  virtue  rather  than  a  fault;  for  it  assures  the 
workmen  that  the  employer  is  acting  in  entire  good 
faith. 

There  are  cases,  however,  where  the  lack  of  incen- 
tive to  come  up  to  the  time  limit  may  cause  the  pre- 
mium plan  to  fail.  Suppose  an  employer  knows  that 
some  of  his  workmen  are  soldiering  regularly  three 
or  four  hundred  per  cent.  He  decides  to  put  in  the 
premium  plan;  but  he  knows  that  if  he  uses  the  rec- 
ords that  have  regularly  been  made  in  the  shop,  the 
amount  of  output  used  as  the  basis  of  a  day's  work 
will  be  far  below  what  it  should  be.  He  therefore 
makes  the  premium  begin  only,  let  us  say,  after  the 
workman  has  done  twice  as  much  as  before.  That 
is,  suppose  that  a  piece  of  work  can  be  done  in  four 
hours,  and  that  the  records  of  the  factory  for  quite  a 
period  of  time  show  this  to  be  the  lowest  time  re- 
quired. The  employer  decides  that  the  premium 
should  begin  only  after  the  work  has  been  done  in 
two  hours,  or  after  four  pieces  have  been  done  in  an 
eight  hour  day.  The  workman  may  think  that  this 
is  an  impossible  task,  and  refuse  to  *^go  after''  the 
premium  at  all.  Or  he  may  know  that  it  can  be 
done  in  two  hours,  but  may  prefer  to  *'take  it  easy," 
rather  than  try  for  a  problematical  premium  that 
cannot  be  reached  until  after  he  has  more  than 
doubled  his  output.  The  plan  will  fail,  because  the 
incentive  to  greater  effort  is  too  small,  and  there  is 
no  penalty  for  not  trying  to  secure  the  premium. 


EFFICIENCY  AND  WAGES  341 

What  is  needed  in  this  case,  is  ability  on  the  part  of 
the  employer  to  demonstrate  conclusively  that  the 
work  can  be  done  in  less  than  two  hours.  With  this 
may  be  coupled  some  method  of  inducing  the  work- 
men to  make  the  best  time ;  this  may  be  either  in  the 
form  of  a  differential  rate  (to  be  described  later),  or 
in  some  definite  penalty  in  case  of  failure.  This  case 
illustrates  the  fact  that  there  is  danger  of  making 
the  premium  plan  so  unattractive  as  to  bring  no 
results. 

The  defects  in  the  premium  plan  that  have  hith- 
erto been  discussed  partake,  on  the  whole,  of  the 
nature  of  dangers  that  should  be  avoided  when  it  is 
applied  in  particular  instances.  It  has  one  fault, 
however,  that  is  fundamental  in  its  nature, — a  fault 
that  we  have  observed  in  day  work  and  piece-work 
of  all  kinds.  That  is,  the  temptation  which  it  offers 
to  the  workmen  to  conceal  the  length  of  time  it  takes 
to  do  new  work.  Under  the  premium  plan,  and  on  the 
time  guarantee,  systematic  soldiering  may  be  done 
away  with  only  after  the  rates  have  been  fixed  and 
are  not  liable  to  be  changed.  Under  both  piece  rates 
and  day  work,  the  temptation  to  soldier  on  new  jobs 
is  strong,  in  order  to  avoid  making  a  high  record 
which  will  have  to  be  adhered  to,  and  to  secure  a 
large  price  on  the  job.  Under  the  premium  plan  this 
temptation  is  perhaps  even  stronger,  for  the  reason 
that  the  larger  the  time  base,  the  greater  is  the  pre- 
mium when  the  work  is  afterward  done  in  the  short- 
est time.  This  can  best  be  illustrated  by  a  concrete 
example,  given  by  Dr.  Taylor  in  the  paper  before 
mentioned : 

"Suppose  that  two  men  are  at  work  by  the  day, 


848  BUSINESS  PRINCIPLES 

and  receive  the  same  pay,  say  20  cents  per  hour; 
Smart  and  Honest.  Each  of  these  men  is  given  a 
new  piece  of  work,  which  could  be  done  in  one  hour. 
Smart  does  his  job  in  four  hours  (and  it  is  by  no 
means  unusual  for  men  to  soldier  to  this  extent). 
Honest  does  his  in  one  and  one-half  hours. 

"Now,  when  these  two  jobs  start  on  this  basis 
under  the  Towne-Halsey  plan,  and  are  ultimately 
done  in  one  hour  each,  Smart  receives  for  his  job  20 
cents  per  hour,  plus  a  premium  of  60/3=20  cents, — 
a  total  of  40  cents.  Honest  receives  for  his  job  20 
cents  per  hour,  plus  a  premium  of  10/3=31/3  cents, 
a  total  of  231/3  cents." 

Assuming  that  most  kinds  of  work  can  be  done 
in  an  amount  of  time  that  is  fairly  well  fixed  (though 
this  rule,  as  we  have  seen,  is  by  no  means  universal), 
the  practice  of  basing  payments  on  previous  records 
in  this  way,  not  only  puts  a  premium  on  dishonesty 
and  deceit,  but  works  a  grave  injustice  on  the  work- 
men. If  two  jobs  can  be  done  in  the  same  time,  jus- 
tice and  fair  dealing  demand  that  they  should  be 
paid  for  at  the  same  rate,  as  a  starting  point.  Then 
the  amount  of  premium  earned  will  depend  directly 
on  the  individual  efforts  of  the  workmen.  But  when 
the  time  base  is  taken  from  previous  records  in  the 
manner  above  described,  a  man's  earnings  will  de- 
pend not  so  much  upon  his  individual  exertion  and 
skill  as  upon  the  amount  of  soldiering  that  was  done 
upon  the  work  before  the  premium  plan  was  started. 
Some  records  will  be  made  by  first-class  men  work- 
ing at  near  to  maximum  speed.  Any  premiums 
earned  on  this  kind  of  work  will  come  only  as  a  re- 
sult of  extraordinary  effort  and  skill  and  intelligence. 


EFFICIENCY  AND  WAGES  343 

Other  records  in  the  same  shop  and  on  the  same  kind 
of  work  wiU  be  made  by  an  indifferent  workman 
trying  to  make  a  ten-minute  job  look  as  if  half  an 
hour  were  required  to  finish  it.  In  this  case  a  good- 
sized  premium  can  be  earned  without  any  special 
effort.  The  temptation  to  soldier  on  new  work  under 
the  premium  plan  will  therefore  be  even  stronger 
than  with  ordinary  piece  rates.  With  piece  rates, 
under  the  usual  conditions,  all  that  the  men  can 
gain  from  soldiering  is  the  privilege  of  earning  their 
usual  wages  with  as  little  effort  as  possible,  since 
they  know  that  the  rates  will  be  cut  if  they  try  to 
make  any  extra  money  out  of  the  system.  Under 
the  premium  plan,  however,  soldiering  actually 
means  more  money  in  their  pockets. 

The  disadvantages  arising  from  making  rates 
based  on  previous  records,  are  therefore  two:  First, 
there  is  the  greater  cost  to  the  employer  in  all  cases 
where  there  has  been  considerable  soldiering  in  the 
making  of  the  previous  records.  The  time  basis 
being  too  high,  the  workmen,  when  they  begin  to 
treble  or  quadruple  their  output,  will  earn  half  as 
much  again  as  it  would  really  be  necessary  to  pay 
in  order  to  get  the  work  done.  This  not  only  is  ex- 
pensive, but  it  furnishes  the  employer  a  strong  temp- 
tation to  take  matters  into  his  own  hands  and  cut 
the  rates,  regardless  of  consequences.  Employers 
and  managers  are  only  human,  after  all;  and  the  im- 
mediate saving  of  a  few  dollars  on  a  definite  piece 
of  work  makes  a  much  stronger  impression  on  their 
minds  than  the  loss  that  would  come  indirectly  from 
concealed  restriction  of  output.  The  loss  of  confi- 
dence that  even  a  single  cut  in  the  rates  made  because 


344  BUSINESS  PRINCIPLES 

of  high  earnings,  would  bring,  might  be  sufficient  to 
cause  a  whole  body  of  men  to  give  up  all  attempts 
to  increase  their  wages  through  the  premium  plan. 
The  employer  must  make  up  his  mind  not  to  recoup 
himself  for  any  excessive  earnings  by  cutting  rates, 
for  the  sake  of  the  far  greater  but  less  apparent 
benefits  accruing  from  sticking  to  the  principle  of 
unchangeable  rates. 

The  second  disadvantage  of  making  rates  based 
on  previous  records  is  the  effect  on  the  men  of  the 
inequality  involved.  As  the  employer  has  no  means 
of  knowing  which  records  have  been  made  at  nearly 
maximum  speed  and  which  are  the  result  of  a  large 
admixture  of  soldiering,  some  men  are  liable  to  be 
at  jobs  on  which  they  make  premiums  only  with 
great  difficulty,  while  others  will  find  it  easy  to  add 
to  their  usual  wages.  The  injustice  thus  brought 
about  is  bound  to  influence  the  workmen,  so  that 
some  of  them  may  refuse  to  go  after  the  premiums 
at  all.  Of  course,  it  is  not  always,  nor  perhaps  even 
generally,  true,  that  the  amount  of  soldiering  in  the 
records  of  work  of  the  same  grade  will  vary  so  widely 
as  to  work  serious  injustice.  Where  this  is  the  case, 
however,  the  premium  plan  will  be  slow  and  irregu- 
lar in  its  operation  in  reducing  costs. 

The  answer  to  these  difficulties  is  obvious  enough. 
We  find  ourselves  again  confronted  by  the  desira- 
bility of  an  accurate  scientific  study  of  the  minimum 
time  required  to  do  each  job.  Once  that  is  deter- 
mined, the  tendency  to  drag  out  the  time  on  new 
work  is  removed,  and  a  premium  with  a  fair  and  just 
time  base  will  provide  equal  opportunities  for  all  to 
increase  their  earnings. 


EFFICIENCY  AND  WAGES  345 

Nothing  has  been  said,  so  far,  in  regard  to  the 
possibility  of  combining  the  time-guarantee  with  the 
premium  plan.  It  has  been  made  fairly  clear  that 
the  premium  plan  cannot  hope  to  succeed  if  any 
shifting  of  the  rates  is  attempted;  hence  it  may  be 
assumed  that  a  guarantee  not  to  cut  rates  will  have 
to  accompany  this  system.  In  fact,  one  of  the  ad- 
vantages of  the  premium  system  lies  in  the  smaller 
temptation  which  it  offers  to  employers  to  reduce  the 
rates,  since  the  direct  gains  from  increased  output 
are  divided  between  employer  and  employe. 

Nevertheless,  we  have  seen  that  from  various 
causes  the  premium  plan  may  result  in  larger  earn- 
ings than  the  employer  would  find  it  necessary  to 
pay  some  one  else  to  do  the  work.  It  may  be  neces- 
sary to  offer  at  first  a  much  larger  premium  than 
would  ultimately  bring  the  desired  results,  after  the 
men  have  learned  just  how  much  they  can  do  when 
they  exert  themselves.  Some  rates  may  be  exces- 
sive, because  based  on  records  carefully  nursed  to 
exhibit  a  much  longer  time  on  work  than  is  actually 
required.  After  a  time,  the  employer  will  naturally 
desire  to  cut  excessive  earnings  down  to  a  reasonable 
increase  over  average  wages,  and  to  change  the  time 
bases  on  difficult  jobs,  so  that  those  who  are  earning 
too  little  will  be  given  enough  stimulus  to  induce 
them  to  do  their  best,  and  those  who  are  earning  far 
more  than  their  fellows  through  no  effort  or  skill 
of  their  own  will  have  an  equal  opportunity  with 
other  laborers  of  their  class.  In  some  cases,  when 
the  rates  prove  satisfactory,  no  changes  will  be  nec- 
essary. In  others,  inequality  and  unsatisfactory 
conditions  will  arise.     It  is  well,  then,  to  have  a 


346  BUSINESS  PRINCIPLES 

definite  understanding  that,  at  the  end  of  a  certain 
period  of  time,  a  readjustment  will  be  made. 

Other  conditions  being  equal,  the  time  guarantee 
with  the  premium  plan  should  be  longer  than  with 
the  straight  piece-work  system,  and  the  readjust- 
ment, when  made,  should  embrace  as  few  changes  as 
possible.  Only  the  glaring  inequalities  should  be 
leveled  off,  and  the  really  excessive  rates  cut  down. 
This  is  due  to  the  fact  that  the  premium  plan  auto- 
matically cuts  the  rates  anyway,  as  the  output  in- 
creases, so  that  the  workmen  are  prone  to  feel  that 
the  automatic  cuts  are  enough,  without  an  arbitrary 
reduction  by  the  employer.  With  the  time  guarantee 
on  piece  work,  the  men  who  have  raised  their  wages 
three  or  four  hundred  per  cent  will  be  ready  enough 
to  admit  that  they  are  being  paid  too  highly,  and  will 
submit  gracefully  to  a  readjustment  that  allows  them 
to  earn  sufficiently  more  than  the  average  of  their 
class  to  induce  them  to  work  at  high  speed.  With 
the  premium  plan,  the  inequalities  and  excessive 
earnings  will  not  be  nearly  so  obvious,  and  the  em- 
ployer must  exercise  correspondingly  greater  caution 
in  making  changes.  The  success  of  the  premiiun 
plan  depends  so  vitally  on  a  policy  of  no  change  in 
rates,  and  on  encouraging  the  men  to  earn  as  much 
as  they  can,  that  only  the  most  necessary  readjust- 
ment should  be  made. 

This  part  of  our  subject  calls  for  a  consideration 
of  the  results  secured  by  the  adoption  of  the  premium 
plan.  The  data  are  rather  difficult  to  secure,  because 
of  the  varying  conditions  before  and  after  the  adop- 
tion of  the  plan.  A  certain  switchboard  manufac- 
turing company  has  a  number  of  men  working  at 


EFFICIENCY  AND  WAGES  347 

small  machines  which  used  to  tm*n  out  products  at 
an  average  rate  of  one  every  half  hour.  The  men 
were  paid  30  cents  an  hour,  making  the  labor  cost  of 
each  piece  15  cents.  The  premium  plan  was  installed, 
allowing  the  men  a  premium  of  one-half  of  the  time 
saved.  Within  a  week,  the  pieces  were  being  turned 
out  at  the  rate  of  one  every  eighteen  minutes.  The 
premium  is  easy  to  compute.  The  time  base  was 
thirty  minutes,  and  the  rate  30  cents  an  hour.  Twelve 
minutes  was  saved  on  each  piece,  or  one-fifth  of  an 
hour.  The  total  saving  was  one-fifth  of  30  cents,  or 
6  cents,  of  which  the  workmen  received  3  cents  on 
each  piece.  The  pay  of  the  workmen  is  then  30  cents 
an  hour  plus  3  cents  for  every  eighteen  minutes.  At 
30  cents  an  hour,  eighteen  minutes  amount  to  9  cents. 
Add  3  cents  premium,  and  the  labor  cost  is  12  cents 
per  piece.  As  the  workman  earns  12  cents  every 
eighteen  minutes,  he  is  paid  %  cent  a  minute,  or 
40  cents  an  hour.  The  saving  to  the  manufacturer 
on  500  pieces  is  revealed  in  the  following  table : 

Premium 
%  of 
Day  work  time  saved 

Number  of  pieces 500  500 

Time  on  each,  minutes 30  18 

Total  hours 250  150 

Rate  per  hour,  cents 30  40 

Labor  cost,  per  piece,  cents 15  12 

Total  labor  cost $  75.00  $60.00 

Add  for  overhead  charges,  20c  an  hour 50.00  30.00 

Total   cost 125.00  90.00 

The  saving  in  labor  cost  is  seen  to  be  20  per  cent, 
the  total  saving  28  per  cent,  as  the  time  is  reduced 
100  hours  on  500  pieces.  The  premium  in  this  case 
was  a  rather  large  one,  hence  the  increase  in  wages 
was  considerable,  33%  per  cent. 

The  table  exhibits  another  peculiar  feature  that 


348  BUSINESS  PRINCIPLES 

almost  always  accompanies  any  practical  attempt  to 
apply  the  premium  system.  As  may  easily  be  sm*- 
mised,  the  premimn  in  the  above  case  was  too  large, 
— that  is,  larger  than  will  be  necessary  when  the  time 
is  further  reduced,  as  seems  highly  probable;  for  in 
the  short  space  of  a  little  over  a  week  the  time  was 
reduced  two-fifths.  In  this  case,  as  in  many  others, 
the  shop  was  considered  to  be  in  a  highly  efficient 
state,  the  time  on  the  products  was  supposed  by  the 
workmen,  foremen  and  managers,  to  be  down  to  the 
minimum,  and  it  was  thought  that  it  would  be  idle 
to  apply  the  premium  plan.  When  tried,  therefore, 
the  premium  was  made  fairly  large,  in  order  to  give 
it  a  chance  to  secure  any  results  at  all.  Many  a 
manufacturer,  when  he  hears  about  various  plans  to 
secure  a  larger  output  from  his  working  force  by  a 
rearrangement  of  his  system  of  paying  wages,  is 
strongly  inclined  to  think  that  his  plant  is  working 
at  its  maximum  capacity;  that  his  laborers  are  all 
highly  paid,  first-class  men,  who  are  working  at  top 
speed;  and  that  any  plan  that  proposes  to  pay  them 
more,  in  order  to  secure  a  larger  output  per  man, 
may  work  well  somewhere  else,  but  will  fail  in 
his  particular  establishment.  Yet  thousands  of  in- 
stances have  proved  conclusively  that  no  man  knows 
what  can  be  done  under  an  incentive,  until  it  has 
been  tried. 

The  words  of  Mr.  Halsey  in  regard  to  the  specific 
application  of  his  plan  are  significant.  He  was  shown 
a  table  of  costs  by  a  manufacturing  company  which 
exhibits  ''the  results  on  certain  parts  which  had  been 
reduced  to  a  strictly  manufacturing  basis.  They  had 
been  made  over  and  over  again    *    *    *    and  the 


EFFICIENCY  AND  WAGES  349 

lots  were  of  the  same  size  in  both  columns  of  the 
exhibit.  *  *  *  Both  workmen  and  foremen  were 
positive  that  the  time  on  these  parts  was  down  to  the 
minimum,  and  that  it  was  useless  to  apply  the  mini- 
mum plan  to  them.  Nevertheless,  the  prices  for 
which  the  figures  were  given  showed  an  average 
reduction  in  time  of  41  per  cent. 

*' Another  exhibit  of  considerable  magnitude  was 
applied  by  an  electrical  manufacturing  company,  the 
average  results  shown  being  a  reduction  in  time  of 
39  per  cent,  a  reduction  in  labor  cost  of  28  per  cent, 
and  an  increase  in  wages  per  day  of  23  per  cent. 

**  These  gains  are  so  large  as  to  excite  incredulity. 
Most  men  of  experience  will  not  seriously  consider 
a  system  which  proposes  to  increase  output  by  70 
per  cent  while  decreasing  wage  costs  and  increasing 
daily  wages  by  25  per  cent;  and  I  am  satisfied  that 
if  the  plan  did  about  half  as  weU  as  it  really  does, 
its  growth  would  be  much  more  rapid  than  it  is." 

Another  system  of  paying  labor  deserves  a  brief 
mention, — namely,  the  contract  plan.  In  a  sense  it 
is  a  combination  of  piece  work  and  day  work.  Under 
this  plan,  a  foreman  or  competent  workman  contracts 
with  the  employer  to  turn  out  a  certain  amount  of 
work  for  a  certain  price.  The  contractor  engages 
the  men,  and  arranges  their  rates  of  pay  himself,  this 
pay  being  by  the  day.  The  men  have  no  interest  in 
the  contracts,  and  draw  their  wages,  as  usual,  from 
the  employer.  The  wages  are  charged  against  the 
prices  agreed  in  the  contract;  and  as  the  work  is 
turned  in,  the  contractors  are  paid  the  contract  price 
minus  the  wages  paid  out. 


350  BUSINESS  PRINCIPLES 

The  merits  and  demerits  of  this  plan  can  be  con- 
veniently considered  from  two  viewpoints:  that  of 
the  employer,  and  that  of  the  employe.  To  the  em- 
ployer, it  is  practically  piece  work;  to  the  employe, 
it  is  simple  day's  work,  under  the  supervision  of  an 
unusually  energetic  and  sharp-eyed  foreman.  The 
workmen  may  not  even  know  that  the  work  is  done 
on  a  piece-price  basis,  unless  he  learns  accidentally 
that  it  is  being  done  under  contract. 

The  success  of  the  plan,  from  the  point  of  view  of 
rapid  and  efficient  production  at  low  cost,  will  vary 
with  the  number  of  men  employed  by  the  contractor, 
and  with  the  variety  of  the  work.  The  contractor, 
under  spur  of  financial  necessity,  usually  makes  so 
close  a  study  of  the  time  in  which  work  can  be  done, 
and  supervises  the  men  so  carefully,  that  soldiering 
becomes  difficult.  Some  contractors  teach  laborers 
and  lower-priced  men  to  do  the  work  ordinarily  done 
by  mechanics.  If  the  number  of  men  under  one  con- 
tractor is  large,  the  supervision  usually  cannot  be  so 
close,  and  the  discipline  that  is  necessary  to  a  maxi- 
mum output  is  liable  to  relax.  The  contractors  are 
usually  foremen  or  skilled  workmen,  who  are  inti- 
mately acquainted  with  the  conditions  under  which 
the  work  is  performed.  For  this  reason,  they  can 
secure  nearly  a  maximum  output  so  long  as  the  work 
covered  by  the  contract  is  confined  to  the  few  opera- 
tions with  which  they  are  most  familiar.  If  the 
work  is  more  varied,  it  is  liable  to  extend  beyond 
their  special  field,  the  close  discipline  relaxes  at  cer- 
tain points,  and  the  cost  of  production  mounts  up. 

From  the  employer's  point  of  view,  the  contract 
plan  has  certain  disadvantages.    In  the  first  place, 


EFFICIENCY  AND  WAGES  351 

since  the  macliinery  and  plant  are  furnished  by  the 
employer,  the  contractor  is  liable  to  sacrifice  every- 
thing to  a  larger  output.  The  tools  and  equipment 
deteriorate  rapidly,  because  the  contractor  will  use 
any  tool  or  machine  to  the  breaking  point  rather  than 
spend  the  time  and  effort  necessary  to  repair  and 
otherwise  care  for  the  auxiliary  capital.  The  em- 
ployer should,  and  in  the  best  establishments  does, 
provide  special  men  to  grind  tools  and  care  for  the 
machinery;  and  in  the  contract,  certain  clear-cut  pro- 
visions for  grinding  tools  at  certain  intervals,  and 
so  on,  will  usually  prevent  a  considerable  loss  from 
this  source. 

Second,  the  contractor  himself  is  liable  to  be 
imder  the  same  temptation  to  soldiering  as  the  ordi- 
nary piece  worker.  If  the  profits  which  he  makes 
on  one  contract  appear  too  large,  he  knows  that  the 
employer  will  cut  the  rate  on  the  next  one.  Since 
this  means  that  he  will  not  be  allowed  to  make  more 
than  a  certain  amount  of  profit  in  any  case,  he  would 
rather  make  that  amount  with  as  little  trouble  to 
himself  as  possible.  While  he  may  not  definitely 
try  to  restrict  the  output  of  his  men,  he  is  liable  to 
give  himself  no  concern  as  to  their  efficient  manage- 
ment or  to  improvements  in  methods  or  processes, 
lest  the  price  secured  for  the  next  contract  be  low- 
ered. It  is  not  unusual  for  a  contractor  to  refuse 
to  adopt  improvements  in  machines,  methods,  or 
processes,  because  he  knows  that  his  next  contract 
price  will  be  reduced  in  direct  proportion  to  the 
profits  which  he  has  made,  and  the  improvements 
introduced;  and  he  will  have  to  undergo  all  the 


352  BUSINESS  PEINCIPLES 

trouble  and  stress  of  changed  conditions  of  work, 
without  any  increase  in  his  remuneration. 

There  are  ways  by  which  these  difficulties  may 
be  avoided.  In  many  cases,  there  is  more  than  one 
man  who  would  be  both  capable  and  desirous  of 
taking  on  a  contract  and  putting  it  through.  The 
contract  may  then  be  awarded  to  the  lowest  bidder. 
It  is  not  always  wise,  of  course,  to  keep  changing 
contractors;  but  the  fact  that  there  are  other  men 
ready  and  willing  to  step  into  the  place,  will  often 
prevent  soldiering  on  the  part  of  the  man  who  is 
holding  the  position.  Care  should  be  exercised  in 
following  this  plan,  lest  the  competition  become  too 
keen.  A  bid  may  be  offered  so  low  that  the  contrac- 
tor will  lose  money  on  it,  and  both  the  shop  and  the 
system  becomes  disorganized.  Too  close  competition 
with  regard  to  prices  bid  is  liable  to  lead  to  a  policy 
of  driving  the  men  beyond  their  powers  of  endurance 
or  sense  of  justice,  followed  by  disagreeable,  not  to 
say  costly,  labor  troubles. 

The  difficulty  of  inducing  contractors  to  introduce 
improvements  in  machinery,  methods,  and  processes 
may  be  obviated  by  an  admixture  of  common  sense 
into  the  management.  The  contractor  should  be  al- 
lowed to  share  in  the  benefits  of  any  improvements 
that  are  made.  For  instance,  he  may  be  promised 
that  the  next  contract  price  will  not  be  cut,  and  that 
for  those  following  he  will  be  allowed  to  make  his 
ordinary  profits  plus  one-half  or  one-third  of  the 
amount  saved  by  the  new  method.  In  fact,  after  a 
few  contracts  have  been  made,  and  if  possible  farmed 
out  to  the  lowest  bidder,  so  that  the  minimum  con- 
tract price  has  been  determined,  it  is  often  advisable 


EFFICIENCY  AND  WAGES  353 

to  make  the  contractor's  profits  depend  on  the  sav- 
ings in  cost  of  production  which  he  has  effected.  For 
this  purpose,  wear  and  tear  on  the  machinery,  as  well 
as  wages  paid,  may  be  computed  to  make  up  the 
total,  which  would  do  away  with  the  deterioration  of 
equipment  which  forms  so  serious  an  objection  to 
the  system  as  ordinarily  applied.  The  workings  of 
such  a  plan,  in  an  assumed  case,  might  be  as  follows : 
Suppose  that  a  contract  price  of  $1.00  a  piece  is 
arranged,  and  that  four  thousand  pieces  are  made, 
with  a  total  expense  account  as  shown  in  the  table. 

Pay  of  laborers  $3,000 

Contract  price  4,000 

Expense   of   machines 2,000 

4,000   pieces  cost $6,000 

Cost   per   piece $1.50 

Contractor's  profit $1,000,  or  25  cents  per  piece 

Now,  suppose  that  the  contract  price  is  based  on 
$1.00  a  piece,  plus  one-third  of  the  amount  saved 
over  previous  costs  of  production,  machinery  up-keep 
being  computed,  as  well  as  wages.  The  contractor 
now  makes  5,000  pieces  at  the  same  cost  for  labor, 
and  takes  proper  care  of  the  machinery. 

Pay   of   laborers. $3,000.00 

Contract  base  piece 4,000.00 

Machine   expense 1,000.00 

5,000  pieces  cost  (per  piece,  $1.00) $5,000.00 

Saved,  per  piece .50 

On  5,000  pieces $2,500.00 

Of  this  amount  saved,  one-third  goes  to  the  contractor. .  .$    833.33 
Two-thirds  to  the  employer 1,666.66 

Considered  from  the  point  of  view  of  the  em- 
ploye, the  contract  plan  assumes  widely  different 
aspects,  according  to  the  treatment  accorded  them 


864  BUSINESS  PEINCIPLES 

by  the  contractor.  Ordinarily,  the  workmen  would 
seem  to  have  little  to  gain  under  this  system.  Their 
contractor-foreman  is  anxious  to  turn  out  the  largest 
possible  amount  at  the  lowest  cost,  and  his  familiarity 
with  the  work,  and  the  close  supervision  which  he 
exercises  make  them  work  harder  than  usual  with- 
out an  increase  in  pay.  Yet  in  shops  where  the  con- 
tract plan  has  proved  most  successful,  the  position 
of  the  laborers  is  as  good  as,  if  not  better  than,  in 
establishments  under  ordinary  management.  The 
foreman  knows  the  work  and  its  conditions;  better 
still,  he  knows  the  men  personally,  and  often  he  is 
acquainted  with  all  their  little  trials  and  difficulties. 
They  know  him  as  a  friend  who  sympathizes  with 
them,  and  who  will  help  them  when  in  trouble.  They 
will  gladly  do  more  and  better  work  for  friendship's 
sake  than  they  would  for  an  impersonal  employer, 
who  is  felt  to  be  an  antagonist  intent  on  forcing 
down  wages  at  every  opportunity. 

Where  these  conditions  do  not  obtain,  of  course, 
the  ignorance  and  inexperience  of  the  contractor  in 
handling  men  frequently  causes  the  employes  to  be 
unjustly  treated.  But  the  contract  system  at  its  best 
seems  to  provide  conditions  under  which  the  relations 
between  employers  and  men  are  much  more  agree- 
able and  normal  than  under  ordinary  piece  work  or 
day  work,  and  it  is  to  be  deplored  that  the  benefits 
of  the  system  are  not  more  widespread. 


CHAPTER  XIV. 

EFFICIENCY  AND  WAGES;  THE  STUDY  OF 
UNIT  TIMES. 

The  various  methods  that  have  been  discussed  in 
the  foregoing  chapters  for  stimulating  production  by 
the  wage  system  have  been  in  the  main  extremely 
practical  in  their  nature  and  immediately  applicable 
to  existing  conditions.  In  many  cases,  stress  has  been 
laid  on  the  fact  that  the  method  described  could  not 
be  considered  the  best  or  most  scientific  permanent 
solution  of  the  problem,  but  had  the  advantage  of 
bringing  quick  relief  to  diseased  conditions  in  busi- 
ness organization.  They  were,  in  fact,  in  the  nature 
of '  *  first  aids  to  the  injured. "  If  a  man  has  met  with 
an  accident  in  a  place  far  removed  from  expert  medi- 
cal assistance,  it  is  often  not  advisable  to  wait  until 
he  can  be  given  the  best  possible  treatment,  but  to 
fix  him  up  as  well  as  circumstances  will  permit,  so 
that  he  will  not  die  on  the  way  to  the  doctor's  office. 
If  an  artery  has  been  severed,  immediate  measm'es  to 
stop  the  flow  of  blood,  even  if  the  methods  be  crude, 
are  better  than  the  most  scientfic  surgical  treatment 
applied  after  the  patient  is  beyond  hope  of  recovery. 
So  an  establishment  that  is  suffering  from  a  bad  leak- 
age of  profits  may  find  it  best  to  apply  an  immediate 
remedy  that  will  as  far  as  possible  check  the  losses 

355 


356  BUSINESS  PEINCIPLES 

for  the  present,  while  measures  are  under  way  that 
will  ultimately  heal  up  the  wounds. 

The  fundamental  weakness  that  has  appeared  in 
all  previously  discussed  systems  of  paying  wages  we 
found  to  lie  in  the  fact  that  the  employer  or  manage- 
ment had  not  accurate  dependable  data  as  to  the  min- 
imum time  in  which  work  could  be  done.  In  the  ab- 
sence of  such  data  the  only  basis  on  which  wage  pay- 
ments, piece  rates  and  premiums  can  be  computed  is 
the  average  of  previous  records  made  by  the  work- 
men themselves.  We  have  already  seen  how  faulty 
these  records  are,  due  to  the  interest  of  the  workmen 
in  concealing  the  time  in  which  work  can  be  done,  and 
to  the  unconscious  tendency  of  men  in  all  walks  of  life 
to  take  as  slow  and  easy  a  gait  as  possible,  unless 
working  under  a  strong  incentive  to  exert  them- 
selves. Previous  records  then  at  the  best  represent 
only  a  very  rough  approximation  to  the  minimum  in 
which  a  job  can  be  done,  and  at  the  worst  may  be  sev- 
eral hundred  per  cent  off  the  mark.  The  worst  of  it 
is,  that  the  employer  has  no  means  of  telling  which 
records  are  good  and  which  are  bad,  and  conse- 
quently does  not  know  how  much  needless  expense  he 
is  burdening  himself  with,  nor  how  great  an  injustice 
he  is  doing  his  men,  when  he  uses  the  previous  times 
as  a  basis  for  a  pay  system. 

The  disadvantages  of  not  having  an  accurate  sci- 
entific minimum  time  for  each  job  are  almost  innum- 
erable. Similarly  the  advantages  of  having  such  a 
minimum  standard  time  are  difficult  to  count  or 
measure.  In  the  chapters  dealing  with  the  standard- 
ization of  machine  operations  this  subject  was  con- 
sidered with  reference  to  the  possibilities  of  econo- 


EFFICIENCY  AND  WAGES  357 

mies  in  the  details  of  production  where  machine  work 
is  involved.  We  have  now  to  consider  the  question 
in  its  relation  to  work  of  all  kinds,  and  from  a  some- 
what different  point  of  view.  The  problem  before  us 
now  is  that  of  methods  of  so  handling  the  workmen 
and  arranging  the  system  of  paying  wages  that  they 
will  be  induced  to  work  at  maximum  speed  (con- 
sistent with  good  health  and  good  workmanship), 
without  paying  more  than  is  wise  or  necessary  or 
proper  to  secure  this  result. 

It  is  difficult  to  select  words  that  will  not  be  capa- 
ble of  misinterpretation.  Those  who  have  followed 
the  line  of  reasoning  in  the  preceding  chapters  will 
understand  that  by  "inducing  the  workmen  to  work 
at  maximum  speed"  we  do  not  mean  that  the  em- 
ployer should  take  advantage  of  a  laborer's  weak 
economic  and  financial  condition  to  drive  him  or  even 
to  compel  him  to  work  harder  than  he  wants  to.  What 
is  meant  is  that  he  should  be  offered  sufficient  re- 
wards, in  the  shape  of  higher  pay  or  prospect  of  pro- 
motion tendered  in  good  faith,  to  make  him  willing 
and  even  glad  to  do  his  best.  There  are,  it  is  true, 
some  men  who  are  natural  loafers,  who  will  do 
slovenly  work  no  matter  what  inducements  are  held 
out  to  them  to  mend  their  ways,  and  who  seem  to  be 
influenced  by  no  motives  of  ambition  or  hope  of  bet- 
tering their  condition;  but  men  of  this  type  are  fortu- 
nately rare.  It  is  an  inexorable  law  of  nature  that  the 
incompetents  are  weeded  out  and  only  the  capable 
and  efficient  survive.  Nature  has  the  right  to  keep 
only  the  best.  The  employer  similarly  has  the  right  to 
fill  up  his  labor  force  with  the  best  men  he  can  get. 
The  employe  who  cannot  or  will  not  do  a  reasonable 


358  BUSINESS  PEINCIPLES 

amount  of  satisfactory  work  has  no  right  to  expect 
that  his  employer  will  keep  on  paying  him  money  for 
labor  that  he  could  get  efficiently  and  ably  performed 
by  someone  else.  More  than  that,  the  employe  who 
will  not  accept  an  increase  of  fifty  or  a  hundred  per 
cent  in  his  pay  to  increase  his  output  to  an  extent 
that  the  experience  of  others  has  shown  to  be  reason- 
able, has  no  right  to  keep  from  this  job  some  other 
man  who  would  be  glad  to  improve  the  opportunity 
offered  to  earn  high  wages.  If  the  standard  set  by  the 
employer  is  reasonable,  and  the  inducements  to  at- 
tain this  standard  are  such  as  would  cause  an  average 
man,  without  any  undue  compulsion,  to  do  his  best, 
this  standard  may  justly  be  dem-anded  of  all.  The 
weak,  the  incompetent,  above  all  the  deliberate 
drones,  after  they  have  been  given  an  equal  oppor- 
tunity with  the  rest,  have  no  further  claim  on  the  em- 
ployer. 

The  feature  of  not  paying  for  additional  effort 
more  than  is  wise  or  necessary  or  proper  ought  to  be 
well  understood  by  those  who  have  followed  the  argu- 
ment thus  far,  but  to  the  careless  or  prejudiced  read- 
er is  capable  of  misinterpretation.  The  employer 
generally  understands  by  this  that  he  should  not  pay 
a  man  more  for  his  work  than  he  could  get  another 
man  to  do  it  for,  and  the  workman  knows  that  this  is 
the  principle  on  which  his  wages  are  usually  gauged. 
There  is  a  fairly  fixed  rate  of  wages  for  each  grade  of 
labor,  and  the  workman  knows  that  if  he  succeeds  in 
earning  at  piece  rates  much  more  than  this  amount, 
the  employer  can  and  will  get  another  man  to  take 
his  place  and  do  his  work  at  lower  wages.  Since,  as 
we  have  so  frequently  pointed  out,  this  system  leads 


EFFICIENCY  AND  WAGES  359 

to  soldiering  and  high  labor  cost,  the  workman  must 
be  paid  more  than  the  average  rate  of  wages  of  his 
class.  Only  the  driving,  unjust  employer  can  expect 
to  get  a  more  than  average  output  from  his  men  with- 
out paying  more  than  the  average  wage.  But  if  more 
than  the  usual  rate  must  be  paid,  the  question  of  how 
much  more  remains  to  be  decided.  This  question 
brings  with  it  another,  much  more  difficult  to  answer, 
namely,  how  can  the  maximum  output  be  secured  and 
the  wages  be  adjusted  so  that  each  man  will  receive 
just  that  amount  that  will  make  him  contented  to  do 
his  best,  no  more  and  no  less. 

It  is,  of  course,  possible  to  secure  a  maximum  out- 
put by  paying  excessive  wages ;  but  that  is  not  wise 
or  necessary  or  proper.  The  man  who  is  soldiering 
four  hundred  per  cent  on  piece-work  will  bring  his 
production  up  to  the  standard  if  he  knows  positively 
that  the  rate  will  not  be  cut,  but  in  that  case  his  work 
will  be  costing  the  employer  two  or  three  times  what 
would  be  necessary.  The  man  would  be  content  to  do 
the  same  amount  for  a  permanent  guaranteed  in- 
crease, say  of  sixty  per  cent  over  his  present  wage. 
The  disadvantages  of  the  systems  we  have  been  con- 
sidering have  consisted  mostly  in  the  fact  that  while 
they  will  secure  the  desired  increase  in  the  output 
either  immediately  or  ultimately,  they  involve  paying 
for  a  greater  or  less  period  of  time  what  may  be  called 
excessive  wages,  necessitating  ultimately  a  readjust- 
ment of  rates  with  all  its  attendant  dangers. 

Let  us  turn  back  over  the  preceding  pages  and 
consider  what  disadvantages  have  arisen  in  the  appli- 
cation of  the  systems  of  pajdng  wages  that  have  been 
considered,  because  the  management  has  not  been  in 


360  BUSINESS  PEINCIPLES 

possession  of  the  scientific  minimum  standard  time 
for  each  piece  of  work. 

1.  In  the  first  place,  there  has  been  the  motive 
for  deliberate  systematic  soldiering.  Even  without 
any  time-guarantee  or  premium  plan  or  other  ex- 
traordinary system  of  pay,  any  device  by  which  the 
employer  actually  knows  beyond  any  possibility  of 
doubt  just  how  long  it  takes  to  do  a  job  will  eliminate 
at  once  a  large  margin  of  loss  from  concealed  but  de- 
liberate marking  time.  If  it  does  nothing  else  it  sets 
a  mark  towards  which  the  man  who  takes  a  pride  in 
the  efficiency  of  his  work  will  strive,  since  he  knows 
that  he  is  not  giving  any  trade  secrets  away  by  at- 
taining the  goal.  In  the  case  of  the  men  who  were 
soldering  wires  to  switchboard  pieces,  described  in 
a  previous  chapter,  we  saw  how  effective  was  the 
fourteen  minute  standard  time  for  the  work.  The 
men  knew  that  the  work  could  be  done  in  fourteen 
minutes.  As  their  records  were  turned  in,  the  ques- 
tion uppermost  in  their  minds  was  not  "How  much 
extra  effort  have  I  been  able  to  save  myself?"  but 
*  *  Am  I  a  first  class  workman  or  not  V^  It  is  true  that 
in  the  instance  mentioned  the  question  of  whether  a 
man  had  reached  the  point  of  being  a  first  class  work- 
man was  coupled  with  the  prospect  of  promotion  and 
higher  pay,  but  it  is  noteworthy  that  there  was  not  a 
man  in  the  department  who  felt  that  he  had  any  in- 
terest to  further  by  taking  longer  time  to  do  the  work 
than  was  absolutely  necessary. 

Take  another  case,  that  of  the  insulation  of  small 
coils.  The  work  could  be  done  in  six  minutes,  but  for 
years  bore  a  piece-rate  arranged  on  the  basis  of  half 
an  hour  for  the  job.    Since  no  records  were  ever 


EFFICIENCY  AND  WAGES  361 

turned  in  that  clipped  many  minutes  off  the  half  hour 
basis,  neither  the  foreman  nor  the  management  had 
any  idea  that  the  rate  was  too  high.  If  there  had 
been  an  accurate  time  study  made  of  the  operations 
on  this  work,  it  would  have  been  impossible  for  the 
men  to  soldier  five  hundred  per  cent  regularly  on  the 
insulating  task.  Even  if  the  work  had  been  paid  for 
by  the  day;  even  if  there  were  no  incentive  to  make 
a  good  showing;  and  even  though  the  superivsion 
were  careless  and  ineffective,  no  workman  would 
dare  to  turn  in  thirty  minutes'  time  on  a  job  that  was 
generally  known  to  be  possible  of  execution  in  six 
minutes. 

It  is  not  maintained  that  the  mere  knowledge  of 
the  minimum  time  on  piece  work  jobs  will  be  of  itself 
sufficient  to  induce  the  workmen  to  strive  toward  the 
maximum  output.  In  fact,  if  a  piece-rate  system 
were  made  out  on  a  basis  that  would  allow  the  men  to 
make  only  average  wages  in  the  event  of  their  attain- 
ing the  maximum,  widespread  and  justifiable  dissat- 
isfaction would  inevitably  ensue.  But  a  knowledge 
of  minimima  time  does  have  this  advantage,  that  it 
takes  away  the  motive  for  systematic  and  deliberate 
soldiering,  that  is,  the  interest  of  the  workman  in 
concealing  the  length  of  time  it  requires  to  do  a  piece 
of  work.  If  the  standard  time  is  already  well  known 
to  the  foremen,  there  is  nothing  to  conceal. 

2.  As  with  systematic  soldiering,  so  too  with 
unconscious  or  natural  soldiering.  This  arises  from 
the  fact  that  it  is  a  natural  tendency  to  exert  no  more 
effort  than  the  necessities  of  any  given  situation 
require.  When  nobody  knows  definitely  just  how 
much  time  must  be  put  into  any  given  piece  of  work, 


362  BUSINESS  PEINCIPLES 

no  man  feels  that  he  can  be  censured  for  drifting 
along  at  his  ease  provided  he  does  not  sit  down  to 
read  the  paper  while  at  his  work,  and  provided  he 
does  not  turn  in  a  record  inexcusably  inferior  to  pre- 
vious showings.  But  if  there  is  a  standard  time  by 
which  his  own  record  will  be  compared,  he  will  keep 
the  minimum  time  in  his  mind,  and  even  if  he  makes 
no  conscious  attempt  to  equal  it,  he  will  uncon- 
sciously waste  less  time  than  he  would  if  anything 
is  accepted  unquestioned.  Given  a  motive  to  turn 
out  the  maximiun  output  under  a  scientific  system 
of  pay,  and  the  unconscious  soldiering  will  disappear 
entirely. 

3.  Another  type  of  unconscious  soldiering  has 
been  discussed  in  the  chapter  on  standard  times  for 
machine  operations.  This  arises  from  the  fact  that 
very  few,  even  of  the  best  workmen,  know  the  con- 
ditions necessary  to  secure  the  best  results.  The  es- 
tablishment that  takes  up  the  study  of  the  standard 
time  on  work  will  naturally  give  consideration 
to  the  matter  of  finding  out  better  methods,  better 
processes,  better  tools  and  the  like.  In  this  way 
the  time  may  be  reduced  below  what  would  be  pos- 
sible to  the  most  skilled  and  industrious  workman, 
and  result  in  tremendous  savings  in  cost  of  pro- 
duction. All  that  has  been  said  in  regard  to  machine 
operations  and  in  regard  to  the  saving  of  wasted 
time  applies  here,  and  need  not  be  further  discussed. 

4.  In  our  consideration  of  the  premium  plan  we 
came  across  a  number  of  instances  where  a  lack  of 
statistics  covering  the  time  in  which  work  could  be 
done  made  the  plan  faulty  or  ineffectual.  Perhaps 
the  most  marked  of  these  related  to  the  smallness  of 


EFFICIENCY  AND  WAGES  363 

the  initial  inducement  which  the  premium  plan 
offered  to  the  workman,  giving  rise  to  very  slow 
results  when  the  plan  is  inaugurated.  Suppose  a 
man  earns  thirty  cents  an  hour  and  has  long  taken 
five  hours  to  do  a  certain  piece  of  work.  On  a  pre- 
mium of  one-third  of  the  time  saved,  he  will  receive 
only  five  cents  for  cutting  half  an  hour  off  his  pre- 
vious record.  The  man  has  been  unconsciously  sol- 
diering a  hundred  per  cent  or  more  on  his  work — and 
experience  shows  this  to  be  a  small  percentage — ^but 
he  does  not  know  that.  He  will  think  at  first  that 
to  cut  off  even  half  an  hour  will  require  extraordinary 
effort  on  his  part.  Probably,  therefore,  he  will  not 
try  for  the  premium  at  all.  After  a  long  period  of 
time  he  or  some  of  his  fellow-workmen  will  discover 
that  it  is  possible  after  all  to  clip  half  an  hour  from 
the  record  without  undue  exertion,  and  he  begins  half 
contemptuously  to  try  for  the  extra  five  or  ten  cents 
a  day.  It  may  take  months  before  he  gets  his  eyes 
opened  to  the  fact  that  the  work  can  be  done  in  two 
hours  and  a  half  or  less,  and  that  the  premium  is 
capable  of  paying  him  a  dollar  a  day  in  additional 
wages.  At  first  he  does  not  see  that  in  saving  so 
much  time  he  not  only  makes,  in  the  case  assumed, 
a  premium  of  twenty-five  cents  on  each  piece,  but 
turns  out  four  pieces  instead  of  two,  on  each  of  which 
he  earns  his  premium.  Nor  can  the  management 
that  has  made  no  attempt  to  determine  the  minimum 
time  on  this  work  spur  the  men  to  greater  effort  by 
pointing  out  at  the  beginning  just  what  the  premium 
will  do  for  them.  Months  must  therefore  be  wasted 
while  the  workmen  are  slowly  learning  for  them- 
selves what  they  can  do  and  what  they  can  earn.    In 


364  BUSINESS  PKINCIPLES 

many  cases  the  premium  which  would  really  yield  a 
large  return  in  the  end  may  appear  so  imattractive 
at  the  first  that  the  workmen  will  scorn  to  rise  to 
such  uninviting  bait  at  all,  and  the  plan  will  fail 
utterly. 

With  the  standard  time  determined  beforehand, 
all  this  trouble  may  be  avoided.  The  foreman  can 
say  to  the  workman:  ''This  job  can  be  done  in  two 
and  a  half  hours  instead  of  five.  You  can  do  it  in 
that  time.  When  you  have  done  so,  you  will  get  a 
premium  of  twenty-five  cents  on  each  piece,  and  by 
doing  four  pieces  instead  of  two  will  add  a  dollar  a 
day  to  your  wages."  If  he  is  the  right  kind  of  a 
foreman  he  will  pitch  in  and  do  the  work  himself  in 
two  hours  and  a  half.  At  any  rate,  the  speed  boss  or 
tester  can  demonstrate  before  the  unbelievers  that 
the  extra  dollar  a  day  is  in  plain  sight  of  all  w^ho  wish 
to  try  for  it.  The  men  will  then  make  determined 
efforts  to  increase  their  output  from  the  very  start, 
knowing  that  they  are  within  reach  of  a  real  and 
highly  desirable  increase  in  their  wages. 

It  is  because  the  advantages  of  the  premium  plan 
are  not  evident  in  the  beginning  that  so  many  manu- 
facturers have,  as  Mr.  Halsey  observes,  made  the 
premium  too  large.  A  premium  of  one-half  or  two- 
thirds,  that  does  not  appear  to  promise  much  in  the 
beginning,  is  liable  to  result  in  much  higher  wages 
than  are  necessary  or  proper,  and  thus  tempt  the 
employer  to  cut  the  time  base.  As  we  have  seen, 
however,  the  premimn  plan,  once  started,  is  a  dan- 
gerous thing  to  tamper  with.  As  it  automatically 
cuts  the  piece  rate  when  production  increases,  the 
workmen   will   view  with   extreme   suspicion   any 


EFFICIENCY  AND  WAGES  365 

attempt  to  reduce  the  rate  arbitrarily.  A  premium 
which  will  be  satisfactory  to  employer  and  employe 
in  the  long  run  if  the  management  can  point  out  that 
it  will  ultimately  increase  wages  thirty  to  one  hun- 
dred per  cent,  will  bring  better  results  from  the  start 
than  a  high  premium  which  the  workmen  do  not 
understand,  and  which  in  the  end  will  mean  wages 
higher  than  are  necessary  or  proper. 

5.  Another  fault  of  the  premium  plan  with  a 
time  base  calculated  from  previous  records  is  the 
injustice  and  unfairness  that  will  arise  from  the  fact 
that  the  amount  of  soldiering  in  the  previous  records 
does  not  represent  a  constant  factor.  We  remember 
in  the  illustration  of  the  two  men  who  were  given 
new  work  which  could  be  done  in  one  hour  that  one 
man  finished  his  job  in  four  hours  and  the  other  in 
an  hour  and  a  half.  When  these  two  jobs  were  put 
on  a  premium  basis  the  man  who  soldiered  most 
earned  40  cents  and  the  man  who  was  honest  earned 
23%  cents.  In  the  absence  of  statistics  as  to  the 
minimum  time  for  all  jobs  the  premium  plan  must 
inevitably  result  in  allowing  some  workmen  to  earn 
very  large  wages,  while  others,  in  which  previous 
records  have  been  made  by  first-class  men  working 
at  high  speed,  will  find  it  impossible  to  earn  enough 
to  make  it  worth  while  for  them  to  go  after  the 
premium.  Not  only  does  this  prevent  numbers  of 
the  workmen  from  increasing  their  output,  but  it 
fosters  a  feeling  among  the  men  that  the  employer  is 
not  giving  all  of  them  a  ** square  deal."  Even  if  all 
of  them  are  earning  a  least  a  fair  day's  wage,  it  is  not 
in  human  nature  to  see  some  men  given  an  oppor- 
tunity to  double  their  wages  while  others  must  work 


366  BUSINESS  PRINCIPLES 

just  as  hard  for  the  same  old  pay,  without  a  feeling 
that  injustice  has  been  done.  And  on  new  work  the 
temptation  to  soldier  under  the  premium  plan  is  even 
sttt'onger  than  under  ordinary  piece  work,  because  in 
the  first  case  it  means  additional  money  wages,  while 
in  the  second  it  only  means  the  privilege  of  doing  the 
work  in  ease  and  comfort.  Here  we  meet  again  the 
advantage  which  comes  from  taking  away  all  motive 
for  deliberately  concealing  the  time  in  which  work 
can  be  done. 

In  connection  with  the  unfairness  that  arises  from 
basing  the  premium  plan  on  workmen's  records  we 
should  consider  the  confusion  that  will  ensue  in  the 
management  of  the  men.  Since  the  employer  or  fore- 
men do  not  know  which  work  has  been  done  close  to 
minimum  time  and  which  contained  a  large  element 
of  soldiering  they  will  be  at  a  loss  to  understand  just 
why  some  men  are  increasing  their  output  and  earn- 
ing large  premiums  and  why  some  are  not.  The  man 
who  is  doing  well  may  win  undue  commendation  from 
his  employer  on  the  ground  that  he  is  an  especially 
skillful  and  energetic  workman,  when  as  a  matter  of 
fact  his  premiiun  has  been  based  on  a  record  made 
with  an  excessive  amount  of  soldiering.  Likewise 
the  man  who  is  earning  little  more  than  formerly 
may  or  may  not  be  liable  to  censure.  He  may  be 
lazy  and  lacking  in  ambition,  or  the  time  base  on  his 
work  may  be  so  arranged  that  there  is  little  chance 
for  him  to  earn  a  premium.  Confusion  in  this  respect 
is  liable  to  lead  to  further  injustice  to  the  workmen 
and  to  utter  failure  of  the  plan.  Where  a  large  num- 
ber of  men  are  engaged  in  the  same  kind  of  work, 


EFFICIENCY  AND  WAGES  367 

however,  it  is  generally  easy  to  determine  who  are 
the  workers  and  who  are  the  drones. 

6.  It  is  perhaps  not  necessary  to  make  a  special 
point  of  the  value  of  having  a  definite  goal  before  the 
eyes  of  the  workmen,  since  that  has  already  been 
touched  upon.  Yet  it  is  not  only  necessary  that  the 
workmen  should  realize  that  the  management  knows 
the  quickest  time  in  which  a  job  can  be  done,  but  this 
quickest  time  should  be  constantly  brought  to  their 
attention  as  a  mark  at  which  they  should  aim  and  as 
a  mark  which  the  management  will  expect  them  to 
hit.  On  all  instruction  cards  and  time  cards  which 
the  men  have  to  read  and  fill  out  there  should  be 
placed  in  plain  sight  the  standard  time  for  the  job 
that  is  under  way.  This  will  not  be  effectual,  of 
course,  unless  there  is  some  incentive  to  the  work- 
man to  reach  this  standard  time,  and  as  we  shall  see, 
in  some  cases  there  may  even  be  a  penalty  attached 
for  not  making  it.  It  is  obvious,  however,  that  even 
the  dullest  will  feel  no  temptation  to  soldier  deliber- 
ately when  they  see  that  the  management  know  accu- 
rately how  fast  the  work  can  be  done.  If  no  deter- 
mination of  the  standard  time  has  been  made,  the 
men  will  have  no  definite  mark  to  aim  at,  and  all  the 
incentive  from  this  cause  wiU  be  lacking. 

We  come  now  to  a  consideration  of  the  methods 
to  be  employed  in  finding  out  just  how  much  work  a 
first-class  man  can  do  in  a  day,  or  stated  in  other 
terms,  just  how  long  it  takes  to  do  a  certain  piece  of 
work.  This  requires  a  study  of  unit  times,  so-caUed, 
invented  by  Dr.  Taylor  and  later  applied  by  him  and 
by  several  others. 

The  method,  in  brief,  is  as  follows:    To  find  out 


368  BUSINESS  PKINCIPLES 

how  quickly  work  can  be  done,  a  first-class  man  must 
be  timed  with  a  stop-watch  while  he  is  working  fast. 
The  only  way  in  which  the  timing  can  be  done  with 
certainty  is  to  divide  the  man's  work  into  its  smallest 
elements,  and  time  each  element  separately — ^hence 
the  term,  unit  times.  For  instance,  in  the  case  of  a 
man  excavating  clay  with  a  wheelbarrow,  the  ele- 
ments should  be:  Filling  barrow  with  clay,  time  in 
hundredths  of  a  minute.  Laying  down  shovel  and 
picking  up  handles  of  wheelbarrow,  time  in  hun- 
dredths of  a  minute.  Wheeling  barrow  up  incline, 
time  per  foot  walked,  or  time  for  walking,  say,  twenty 
feet.  Wheeling  barrow  on  level,  time  per  foot 
walked.  Time  for  dumping  and  turning,  in  hun- 
dredths of  a  minute.  Returning  empty,  times  on 
level  and  down  incline.  Dropping  barrow  and  pick- 
ing up  shovel,  time  in  hundredths  of  a  minute. 
When  all  these  have  been  added  up,  and  accidental 
delays  have  been  eliminated,  the  absolute  minimum 
time  for  the  work  will  have  been  found. 

This  simple  illustration  does  not,  of  course,  fur- 
nish an  entire  solution  of  the  problem,  nor  will  a 
single  observation  be  sufficient  to  give  practical  and 
usable  results.  A  number  of  observations  should  be 
taken  on  different  first-class  men,  at  different  times 
and  under  different  conditions,  and  these  should  be 
averaged. 

A  most  difficult  matter  to  decide  is  the  amount 
of  time  in  gross  that  must  be  allowed  for  rest,  and 
for  accidental  and  unavoidable  delays.  This  can  be 
determined  by  taking  the  gross  amount  of  work  per- 
formed in  a  day  and  comparing  it  with  the  times 
made  on  the  individual  operations.    If,  in  addition, 


EFFICIENCY  AND  WAGES  369 

the  times  for  rest  and  for  accidental  or  unavoidable 
delays  are  entered  on  the  record  along  with  the  actual 
work  operations,  these  elements  can  be  studied  with 
about  the  same  accuracy  as  the  others. 

One  of  the  greatest  difficulties  in  this  kind  of 
study  is  to  be  foimd  in  the  fact  that  no  two  men 
work  at  exactly  the  same  rate  of  speed.  Even  on 
the  simplest  and  most  ordinary  of  day  labor  some 
men  will  have  a  *' knack"  of  getting  through  a  cer- 
tain amount  of  work  with  considerably  less  expendi- 
ture of  time  and  effort  than  others.  When  the  work 
requires  special  skill  and  intelligence,  the  variation 
between  the  times  taken  by  different  men  becomes 
so  important  as  almost  to  defy  analysis.  This  factor 
we  have  already  touched  upon  in  considering  stand- 
ard times  for  machining,  where  a  large  amount  of 
manual  dexterity  and  skill  is  involved,  as  in  assem- 
bling work.  The  principle  to  apply  in  a  case  of  this 
kind  is  to  divide  the  necessary  work  into  its  simplest 
elements  and  give  each  man  as  few  operations  to 
perform  as  possible.  This  serves  a  double  purpose 
in  shortening  the  time  required.  By  increasing  the 
division  of  labor  each  man  becomes  more  skilled  in 
devoting  his  attention  to  two  or  three  operations 
than  when  he  must  divide  his  time  among  twelve 
or  fifteen.  Also  by  reducing  the  number  of  opera- 
tions in  the  work  of  each  man  the  complexity  of  the 
study  of  unit  times  is  decreased  and  the  standard 
minimum  is  more  easily  determined.  In  general, 
the  best  policy  is  to  take  the  time  of  a  first-class  man 
when  working  at  his  best.  When  this  is  secured  it 
is  not  a  difficult  matter  to  determine  how  far  short 
of  this  amount  an  average  man  can  do. 


370  BUSINESS  PEINCIPLES 

Where  the  work  is  simple  and  requires  little  skill, 
there  will  not  be  a  great  amount  of  variation  be- 
tween the  shortest  times  of  a  number  of  men,  both 
average  and  first-class.  In  this  case  the  standard 
time  to  which  the  workmen  will  be  expected  to  attain 
may  be  set  close  to  the  maximum  of  a  first-class  man. 
But  as  the  work  increases  in  complexity  and  calls 
for  a  greater  display  of  skill  and  dexterity,  the  record 
of  a  first-class  man  is  in  danger  of  being  so  low  that 
the  average  workman  cannot  hope  to  reach  it.  The 
standard  to  set  in  a  case  of  this  kind  may  vary  con- 
siderably with  different  conditions.  If  all  or  most 
of  the  workmen  engaged  in  this  kind  of  work  are 
skilled  and  trained,  the  standard  can  be  put  close  to 
the  maximum.  If  the  contrary  is  true,  there  must 
be  considerable  allowance  made;  and  this  rule  will 
also  apply  where  the  work  is  new. 

Theoretically  the  best  policy  is  to  set  the  highest 
standard,  discharge  those  who  cannot  obtain  it,  and 
fill  the  labor  force  with  the  best  men  only.  This  is 
not  always  possible.  The  conditions  of  the  work  or 
of  the  labor  market  may  not  be  such  that  it  is  prac- 
ticable or  possible  to  employ  only  first-class  men. 
Then  again,  in  the  case  of  labor  that  is  strongly 
organized  there  will  invariably  be  vigorous  opposi- 
tion to  a  plan  that  sets  a  difficult  task  that  must  be 
performed  at  the  risk  of  summary  discharge.  Where 
these  conditions  prevail,  it  is  usually  the  best  policy 
to  set  a  standard  that  first-class  men  can  attain  and 
arrange  a  bonus  plan  of  payment  that  will  give  extra 
rewards  to  those  who  perform  their  task  without 
inflicting  any  deliberate  penalty  on  those  who  fail. 

The  proper  division  of  work  into  its  elements 


EFFICIENCY  AND  WAGES  371 

will  call  for  considerable  skill  and  judgment,  and 
will  be  determined  in  most  instances  by  the  con- 
ditions and  nature  of  the  work.  The  minuteness  of 
the  divisions  should  vary  according  as  the  work  is 
standard, — that  is,  to  be  repeated  over  and  over 
again,  or  is  of  a  special  nature.  If  the  task  that  is 
being  timed  is  one  that  will  be  repeated  over  and 
over,  or  is  one  of  a  series  of  jobs  that  form  part  of 
the  regular  work  of  the  establishment,  the  division 
into  elements  should  be  as  minute  as  possible. 

It  seems  at  first  glance  absurd  to  carry  the  sub- 
division of  elements  to  a  point  where  none  of  them 
takes  more  than  five  or  six  seconds  to  perform.  Yet 
as  a  matter  of  fact,  the  finer  the  subdivisions,  the 
more  accurate  will  be  the  results.  It  is  easily  seen 
that  the  study  of  single  small  operations  is  simpler 
and  more  likely  to  be  successful  than  when  a  large 
and  complex  operation  is  studied  as  a  whole.  The 
large  and  complex  operation  gives  greater  oppor- 
tunities for  interruptions  or  accidents  to  creep  in, 
thus  rendering  the  results  obtained  inaccurate  and 
unreliable. 

Of  course  there  are  some  kinds  of  work  that  are 
not  liable  to  be  repeated  many  times.  When  this  is 
the  case  the  necessity  for  extreme  accuracy  is 
not  so  pressing,  and  several  elementary  units  can 
be  grouped  together  and  studied  as  a  whole. 

Perhaps  the  most  extensive  study  of  unit  times 
has  been  made  by  Mr.  Sanford  E.  Thompson  in  con- 
nection with  all  kinds  of  work  in  the  building  trades. 
His  results  are  partly  described  by  Dr.  Taylor  in  the 
paper  on  Shop  Management.  The  form  giving  the 
results  of  time-study  on  excavation  work  is  that 


372  BUSINESS  PEINCIPLES 

used  by  Mr.  Thompson  and  given  in  the  aforesaid 
paper.  It  contains  spaces  for  a  description  of  the 
work,  for  recording  the  times  on  elementary  opera- 
tions in  detail,  for  recording  the  total  time  of  com- 
plete operations,  including  necessary  delays  and  so 
forth,  and  blanks  for  setting  down  the  elementary 
units  into  which  any  piece  of  work  may  be  divided. 

In  the  table  shown  observations  were  recorded 
on  two  similar  operations,  the  times  on  which  were 
slightly  different — excavating  sand  and  clay.  The 
time  for  the  elements  in  each  of  these  is  the  same 
except  for  the  fact  that  clay  has  to  be  picked  apart 
and  is  more  difficult  to  load.  One  advantage  of  the 
minute  subdivision  into  elements  consists  in  the  fact 
that  observations  on  either  of  these  operations  will 
do  for  the  other,  except  for  the  loading.  The  table, 
as  will  be  seen,  is  not  fully  filled  out,  enough  items 
being  given  to  show  the  method  pursued. 

The  scientific  determination  of  the  amount  of 
work  a  man  can  do  is  not  limited  to  a  mere  time  study 
of  the  elements  of  a  job  when  done  by  a  first-class 
workman  at  high  speed.  We  saw  in  the  chapter  on 
standard  times  for  machining  that  in  the  case  of 
certain  kinds  of  work  the  time  could  be  materially 
shortened  by  extended  experiments  to  determine 
which  tools  and  appliances  would  give  the  best 
results,  which  speeds  and  cuts  and  power,  and  other 
conditions  of  work.  In  work  of  that  kind  an  instruc- 
tion card  was  necessary.  With  simpler  kinds  of 
labor,  such  as  excavation  with  pick,  shovel  and  wheel- 
barrow, or  loading  billets  with  the  hands  alone,  there 
is  no  need  of  instruction  cards  to  tell  the  manner  and 
the  order  in  which  operations  should  be  performed. 


EFFICIENCY  AND  WAGES 


373 


STUDY  OF  UNIT  TIMES  ON  WHEELBAREOW  EXCAVATIONS. 


Opkrations:   Wheelbarrow 
Excavation 

a 
O 

o 
S 

O 

a 

o 

a 

> 

< 

a 
b 
c 
d 
e 

f 

a 
b 
c 

d 

e 
f 

1.37 
1.56 
1.82 
1.97 
2.27 

2.36 

1.24 
1.36 
1.59 
1.83 
2.08 
2.33 

15 
13 

a 
b 
c 
d 
e 

f 

a 
b 
c 
d 
e 
f 

1.12 
1.39 
1.58 
1.70 
1.02 

2.05 

1.23 
1.38 
1.60 
1.78 
2.05 
2.23 

1.12 
0.27 
0.19 
0.12 
0.22 

0.13 

1.23 
0.15 
0.22 
0.18 
0.27 
0.18 

12 

a' 
a' 
a' 
a' 

1.86 
1.81 
2.14 
1.98 

11 

Men:                 MikeFlaherty 

If 

Materials:        Sand  requiring  no  pick. . 
Hard  clay  in  bank 

16 

14 

Implements:    No.  3  Shovel  —  Contract- 
or's wooden  wheel- 
barrow   

Conditions:      Day  work  for  a  contractor 

13 

Average  barrow  load  of  sand  is  2  32  cu  ft 

day  "  2.15    *' 

.. . . 

Time 

Complete  Operations 

a 
-39 

•*3 

_  6* 

3-2 

Total 
shoveling 
and  wheel- 
ing, min. 

Si. 
1^^ 

a  n 

Ol'S 

0^ 

7  a.m. 

Commenced  loading  sand. 

43  loads  wheeled  50  ft 

Picking  hard  clay 

29  loads  clay  wheeled  50  ft. 
Picking  hard  clay  again. . 
4  loads  clay  wheeled  50  ft.. 

9:02 

22 
48 

109 
7 
15 

301 

122 

2.84 

9:50 

11:39 

11:46 

55 

■"124" 

1.67 
8.76 

12:01 

Detail  Operations 

s 

m 

.a 
0 

J, 

a  >-'  0 

1| 

go 

J2 

>     S 
oi52 
jaSfc 

6    -= 

<».2« 

a  Filling  barrow  with  sand 

1.24 

0.182 
0.225 
0.172 
0.260 
0.162 

0.094 

3.2 

b  Starting 

c  Wheeling  full— 50  ft 

0  450 

d  Dumping  and  turning 

e  Returning  empty — 50  ft 

0.520 

f  Dropping  barrow  and  starting  to  shovel 

g  Total 

2.24 

h ....";:;":;":;::;;:::;::;":::::;:::;;:.:..:.. 

a'  Filling  barrow  with  clay... •..•••••• 

4 

1.948 

0.144 

13.05 

Note:    Comparison  of  "Detail"  with  "Complete  operations"  shows  that  about  271 
of  the  total  time  was  taken  in  rest  and  other  delays. 


374  BUSINESS  PKINCIPLES 

But  investigation  into  the  amount  of  work  that  can 
be  done  may  be  carried  to  almost  any  degree  of  min- 
uteness, covering  both  the  tools  employed  and  the 
nature  and  disposition  of  the  men. 

Experiments  have  been  pushed  forward,  for 
example,  for  determining  which  size  and  shape  of 
shovel  will  yield  the  greatest  results  with  the  least 
effort.  A  shovel  holding  twenty-two  pounds  seems 
to  be  the  scientific  load  on  which  a  man  can  do  his 
maximum.  A  smaller  shovel  increases  the  time  of 
loading  by  requiring  sixteen  or  eighteen  shovelsful 
to  the  barrow;  a  larger  one,  while  it  enables  the 
laborer  to  fill  his  barrow  in  ten  or  eleven  loads,  is 
less  economical  than  the  standard  because  the  time 
required  to  fill  and  lift  the  larger  shovel  exceeds  the 
advantage  gained  in  the  fewer  loads.  So  with  the 
barrow.  This  will  vary  with  the  weight  and  nature 
of  the  material  handled,  with  the  distance  it  has  to 
be  wheeled,  and  especially  with  the  slope  of  the 
incline  up  which  it  has  to  be  pushed.  All  this  will 
seem  to  many  to  be  an  unnecessary  refinement  of 
the  time  study  principle.  Yet  when,  as  in  the  case 
of  construction  work  of  the  kind  used  for  illustration, 
the  operations  are  standard  and  are  to  be  repeated 
thousands  and  tens  of  thousands  of  times,  year  in 
and  year  out,  the  task  of  carrying  on  the  investiga- 
tion will  effect  savings  that  will  in  a  very  short  time 
more  than  pay  for  the  time  and  trouble  involved. 

Experiments  have  also  been  carried  on  for  the 
purpose  of  discovering  what  relation  there  is,  if  any, 
between  the  amount  of  work  done  by  a  man  (foot 
pounds  of  energy  expended)  and  tiring  or  exhaus- 
tion.   Investigation  in  this  field  has  not  yet  been 


EFFICIENCY  AND  WAGES  375 

fully  worked  up,  but  some  interesting  results  have 
been  secured.  It  has  been  discovered  that  for  every 
weight  a  man  carries  on  his  arm,  pushing  or  pulling, 
he  can  be  under  load  only  a  certain  percentage  of  the 
day.  The  remainder  of  the  time  he  rests.  More- 
over, by  distributing  the  periods  of  rest  and  work 
at  exactly  the  right  intervals  more  work  can  be 
accomplished  and  the  laborer  will  be  in  better  physi- 
cal condition  at  the  end  of  the  day  than  if  the  whole 
matter  were  left  to  chance  or  choice.  This  principle, 
while  an  important  one,  is  not  capable  of  general 
practical  application  even  to  purely  physical  labor, 
because  few  men  will  consent  to  have  their  activities 
so  minutely  restricted. 

Experiments  to  find  out  the  best  men  for  any 
given  task  yield  larger  and  more  practical  results. 
For  every  kind  of  work  there  are  naturally  men  of 
certain  physical  and  mental  makeup  that  are  espe- 
cially well  fitted  to  do  this  work.  Where  conditions 
are  favorable,  these  men  can  be  discovered  by  setting 
a  large  daily  task  to  be  performed,  providing  extra 
reward  for  those  who  finish  the  task  and  discharging 
those  who  do  not. 

An  exceptional  illustration  of  this  method  is  de- 
scribed by  Dr.  Taylor.  A  body  of  workmen  in  the 
Bethlehem  Steel  Works,  engaged  on  purely  manual 
labor,  had  been  earning  $1.15  a  day  on  day  work. 
After  a  considerable  amount  of  experimentation  and 
study  of  unit  times,  the  men  were  put  on  piece  work 
and  given  a  task  that  would  require  them  to  do  about 
four  times  as  much  as  formerly,  with  an  increase  of 
pay  to  $1.85  a  day  in  case  they  finished  their  tasks. 


376  BUSINESS  PRINCIPLES 

On  the  workings  of  the  system  Dr.  Taylor  says  in 
part: 

**They  were  practically  all  first-class  men.  *  *  * 
The  tasks  were  made  purposely  so  severe  that  not 
more  than  one  out  of  five  laborers  (perhaps  even  a 
smaller  percentage  than  this)  could  keep  up. 

*'It  was  clearly  understood  by  each  newcomer  as 
he  went  to  work  that  unless  he  was  able  to  average 
at  least  $1.85  a  day  he  would  have  to  make  way  for 
another  man  who  could  do  so.  As  a  result,  first-class 
men  from  all  over  that  party  of  the  country,  who 
were  in  most  cases  earning  from  $1.05  to  $1.15  per 
day,  were  anxious  to  try  their  hand  at  earning  $1.85 
per  day.  If  they  succeeded  they  were  naturally  con- 
tented, and  if  they  failed  they  left,  sorry  that  they 
were  unable  to  maintain  the  proper  pace,  but  with 
no  hard  feelings  either  toward  the  system  or  the 
management.  Throughout  the  time  that  the  writer 
was  there,  labor  was  as  scarce  and  as  difficult  to  get 
as  it  ever  has  been  in  the  history  of  the  country,  and 
yet  there  was  always  a  surplus  of  first-class  men 
ready  to  leave  other  jobs  and  try  their  hand  at 
Bethelhem  piece  work." 

In  this  case  the  standard  was  set  extremely  high 
and  yet  the  plan  succeeded  because  of  exceptional 
conditions.  In  the  first  place  the  men  were  not  sub- 
ject to  the  dictates  of  a  labor  union  whose  rules 
imposed  a  restriction  on  the  amount  of  output  or 
objected  to  a  task  system.  Second,  the  establish- 
ment was  located  in  a  fine  labor  market,  so  that  there 
was  no  difficulty  in  finding  men  to  take  the  places  of 
those  who  dropped  out.  Third,  the  work  was  such  as 
called  for  no  especial  skill  or  previous  training,  so 


EFFICIENCY  AND  WAGES  377 

that  vacant  places  could  be  filled  by  any  man  who 
possessed  good  health  and  strength. 

There  are,  as  we  have  seen,  limitations  to  the 
study  of  unit  times,  limitations  imposed  by  the 
nature  of  the  work,  by  the  skill  and  intelligence 
required  of  the  men  who  perform  it,  and  lastly  by 
the  degree  of  accuracy  which  it  will  be  profitable  to 
attain.  For  most  practical  purposes  the  investiga- 
tion of  foot  pounds  of  energy  expended  in  its  relation 
to  timing  will  not  yield  results  worth  the  trouble  of 
investigation,  because  other  factors  enter  the  prob- 
lem in  so  large  a  measure  as  to  overshadow  entirely 
the  benefits  of  the  greater  accuracy  so  secured. 

The  answer  must  be  an  approximation,  but  it  is 
not  on  that  account  valueless.  It  will  tell,  within 
certain  fairly  well  defined  limits,  the  amount  of  pres- 
sure that  will  yield,  for  all  practical  purposes,  the 
required  power.  When  we  are  dealing  with  human 
beings,  accuracy  that  is  theoretically  almost  absolute 
may  be  determined  if  the  experiments  are  carried  to 
the  last  degree  of  minuteness.  But  for  practical 
purposes  the  unknown  and  indeterminate  factors 
influence  the  result  much  more  largely  than  is  the 
case  when  we  are  dealing  with  machinery.  No  man 
will  consent  to  have  every  second  of  his  working  day 
kept  under  the  absolute  dictation  of  a  superior 
officer.  Even  if  he  would  consent  to  this,  the  impos- 
sibility of  supervision  so  minute  and  all-seeing  as  to 
keep  track  of  every  movement  clearly  shows  the 
impracticability  of  absolute  precision.  For  each 
class  of  work,  for  each  group  of  workmen,  the  em- 
ployer must  determine  what  the  significant  figures 


378  BUSINESS  PEINCIPLES 

are,  how  close  to  absolute  accuracy  it  will  be  worth 
his  while  to  go. 

It  has  not  been  possible  to  give  in  this  chapter 
more  than  the  briefest  outline  of  the  principles  in- 
volved in  a  study  of  unit  times.  The  subject  is  so 
vast  and  so  full  of  possibilities,  many  of  which  are 
as  yet  undiscovered,  that  a  full  discussion  would  fill 
many  volumes.  The  average  employer  or  manager 
who  attempts  to  take  up  the  study  of  elemental  units 
of  work  does  not  realize  at  first  either  the  importance 
of  the  task  nor  the  difficulties  he  is  to  encounter. 
The  study  of  unit  times  is  an  art,  a  new  trade,  with 
its  own  peculiar  implements  and  methods,  without 
a  careful  understanding  of  which  progress  will  neces- 
sarily be  slow.  When  it  is  undertaken  by  an  ener- 
getic man  with  the  determination  to  succeed,  and  to 
keep  at  it  until  he  does  succeed,  the  results  which 
he  can  secure  will  appear  marvellous.  Those  who 
are  interested  in  following  the  subject  further  are 
referred  to  Dr.  Taylor's  papers  in  the  Transactions 
of  the  American  Society  of  Mechanical  Engineers, 
Volumes  XVI  and  XXIV.  It  is  to  be  hoped  that  as 
experiment  and  investigation  into  this  subject  pro- 
ceed, the  results  will  be  published  in  a  form  that  will 
make  them  available  for  practical  application  in  a 
large  number  of  industrial  establishments. 


CHAPTER  XV. 

EFFICIENCY   AND   WAGES;    THE    TASK 
PRINCIPLE. 

It  is  obvious  that  the  determination  of  standard 
times  for  machining,  the  elimination  of  wasteful 
functions  from  the  workman's  operations,  and  the 
study  of  unit  times  for  all  kinds  of  work,  leading  as 
they  do  to  the  establishment  of  a  minimum  record 
for  all  jobs,  should  logically  be  accompanied  by  what 
is  known  as  the  task  system.  That  is,  as  soon  as  it 
is  definitely  known  just  how  much  work  a  man  can 
do,  and  all  me  conditions  that  will  enable  him  to 
attain  the  maximum  output  have  been  introduced, 
it  is  important  to  introduce  measures  to  provide  that 
this  output  shall  not  fall  short  of  the  maximum;  in 
other  words,  to  set  a  task  which  must  be  performed. 

In  the  systems  of  paying  wages  which  have 
already  been  considered  it  will  be  remembered  that 
for  the  most  part  there  was  only  an  inducement 
offered  to  the  workman  to  do  his  best.  There  was 
no  definitely  assigned  task  which  a  man  was  required 
to  perform  or  suffer  some  penalty.  But  with  the 
determination  of  the  maximum  amount  of  work  that 
can  be  done  in  a  day  it  is  possible  to  set  some  definite 
mark  as  a  day's  performance  and  to  require  that 
this  standard  be  attained.    Whether  this  plan  is  ad- 

379 


380  BUSINESS  PRINCIPLES 

visable  or  not  will  require  a  careful  consideration  of 
many  factors  relating  to  the  work  and  the  men. 
Wherever  practical  it  will  undoubtedly  result  in  a 
saving  in  costs  of  production.  However  great  may 
be  the  incentive  to  increased  output  in  guaranteed 
piece  rates  and  other  inducements,  the  average  work- 
man will  not  accomplish  as  much  if  his  production  is 
left  to  his  own  discretion  as  he  will  if  he  is  assigned 
a  definite  task,  a  given  amount  of  work  which  he 
must  do  within  a  specified  time.  This  is  a  principle 
that  is  fundamental  in  human  nature,  and  its  force 
should  be  recognized.  It  is  well  known  that  a  bicycle 
rider  will  do  a  mile  in  less  time  if  he  is  paced  than  if 
he  covers  it  alone,  though  in  both  cases  he  exert  him- 
self to  the  utmost.  Try  as  he  will,  he  cannot  equal 
on  his  own  incentive  alone,  the  record  that  he  can 
make  if  his  task  is  set  for  him. 

So  it  is  with  men  engaged  on  a  piece  of  work. 
If  they  are  given  no  definite  task,  there  are  some 
men  to  whom  an  easy  half  hour  before  lunch,  or  an 
easy  hour  before  closing  time  will  appear  more 
attractive  for  the  moment  than  the  extra  twenty  or 
twenty-five  cents  that  will  come  to  them  at  the  end 
of  the  week.  All  men  are  not  equally  ambitious  nor 
equally  energetic  and  industrious.  Left  to  decide 
the  amount  of  their  output  for  themselves,  a  few 
extra  pennies  near  the  close  of  a  hard  day's  work  are 
liable  to  lose  all  their  charms.  But  if  they  are  given 
a  definite  task  to  perform  under  the  proper  arrange- 
ment of  pay,  all  this  is  changed.  The  accomplishment 
of  the  task  may  not  mean  only  a  few  cents  additional 
pay,  but  may  be  made  to  assure  them  a  considerable 
bonus;  faitoe  to  accomplish  it  may  mean  to  them  an 


EFFICIENCY  AND  WAGES  381 

indifferent  rate  of  pay  for  the  whole  day's  work,  so 
that  their  previous  efforts  are  liable  to  go  for  nought 
because  of  a  few  moment's  let-up.  The  accomplish- 
ment of  the  task  before  the  hour  set  for  closing  in 
any  case  means  that  they  may  take  their  ease  for 
the  remainder  of  the  day.  In  the  establishments 
where  the  wise  rule  is  followed  of  letting  the  men 
go  home  as  soon  as  their  tasks  are  finished,  the  incen- 
tive to  maximum  effort  all  the  time  wiU  rise  above 
all  desire  to  slow  up  either  at  the  end  of  the  day  or 
at  any  other  time. 

In  most  kinds  of  work  the  workman  is  in  a  sense 
given  a  task.  That  is,  he  is  told  in  a  more  or  less 
definite  way  what  he  is  to  do.  Even  the  office  boy  is 
given  an  outline  of  his  duties,  such  as  copying  letters, 
running  errands,  and  what  not,  before  he  starts  in; 
the  man  employed  on  day  work  usually  knows  more 
or  less  definitely  what  is  expected  of  him.  On  piece 
work  no  precise  amount  of  work  is  assigned,  but  the 
workman  is  expected  to  do  enough  to  earn  the  aver- 
age wages  of  his  class.  This  is  not  what  is  meant 
by  the  task  system,  scientifically  applied.  What  is 
understood  is  a  scientific  determination  of  the  pre- 
cise amount  of  work  an  average  or  even  a  first- 
class  man  can  do  when  working  at  high  speed  under 
the  best  possible  conditions,  and  the  assignment  of 
that  amount  of  work  as  a  minimum  task.  As  we 
have  seen,  there  are  many  kinds  of  work  that  cannot 
be  reduced  to  definite  measurable  units  of  like  size, 
and  which  must  be  paid  for  by  the  day.  Yet  wher- 
ever practicable  the  task  idea  should  be  applied  as 
far  as  possible.  Even  work  of  a  miscellaneous  char- 
acter should  be  grouped  into  a  number  of  operations 


382  BUSINESS  PKINCIPLES 

SO  as  to  make  up  a  large  daily  task  for  one  man.  If 
accurate  inspection  of  the  work  is  made  and  records 
are  kept  a  bonus  can  be  paid  for  accomplishing  the 
task,  and  a  penalty — at  least  that  of  not  earning  the 
bonus^can  attach  to  failure.  The  assignment  of  a 
fixed  definite  amount  of  work  in  all  cases  will,  as  we 
have  seen,  tend  to  increase  the  output. 

The  simplest  form  of  the  task  system  under  piece 
rates  is  to  fix  the  rate  at  such  a  point  that  the  man 
who  accomplishes  the  standard  maximum  output  will 
be  enabled  to  earn  just  the  percentage  above  his 
average  wages  that  will  induce  him  to  accomplish 
the  task.  Those  who  come  up  to  the  mark  set  are 
paid  anywhere  from  thirty  to  one  hundred  per 
cent  above  the  normal  wage;  those  who  fail  are 
discharged. 

As  we  have  already  indicated,  there  are  practical 
difficulties  in  the  way  of  this  theoretically  ideal  sys- 
tem. First  of  all,  it  may  not  be  possible  to  get  men 
to  take  the  places  of  those  who  would  be  discharged 
under  the  plan.  If  the  work  requires  special  skill 
or  intelligence  the  natural  supply  of  labor  is  cor- 
respondingly restricted.  It  may  be  that  the  work 
would  require  several  weeks  or  months  of  training 
before  new  men  could  hope  to  come  up  to  the  mark 
even  of  the  men  who  had  failed  to  reach  the  standard. 
In  this  case  constantly  discharging  men  and  training 
up  new  ones  to  take  their  places  might  for  a  long 
time  cost  more  than  retaining  those  of  the  old 
employes  who  did  not  come  up  to  the  standard. 

It  may  be  averred  that  this  difficulty  could  be 
obviated  by  setting  the  standard  lower  so  that  most 
of  the  workmen  could  reach  it.    This  may  be  done, 


EFFICIENCY  AND  WAGES  383 

but  it  means  a  cost  of  production  greater  than  the 
possible  minimum.  The  question  before  the  em- 
ployer is,  Do  I  wish  to  afford  the  time  and  expense 
of  filling  my  shop  with  strictly  first-class  men,  and 
ultimately  secure  the  lowest  cost  of  production? 
The  man  who  sets  the  highest  standard  will  have  to 
reconcile  himself  for  a  long  time  to  added  costs  inci- 
dental to  discharging  the  mediocre  workmen  and 
training  up  other  men  who  may  or  may  not  ultimately 
turn  out  to  be  first-class.  Gradually  under  such  a 
system  the  first-class  men  would  remain  and  the 
indifferent  ones  drop  out  until  in  the  end  the  depart- 
ment would  be  filled  with  picked  workmen,  turning 
out  the  maximum  product  and  earning  high  wages. 
In  the  case  of  simple  manual  labor,  requiring  no  skill 
or  experience,  the  question  of  whether  a  new  man 
is  a  first-class  workman  or  not  is  decided  in  a  few 
days.  There  is  here  no  expense  of  training  and  little 
loss  from  shifting  workmen,  and  a  body  of  first-class 
men  can  be  gathered  together  in  a  comparatively 
short  time. 

Another  objection  to  the  above  mentioned  system 
lies  in  the  antagonism  it  is  liable  to  arouse  in  the 
workmen.  Unless  carefully  managed,  under  ideal 
conditions,  it  looks  too  much  like  forcing  an  employe 
to  turn  out  a  certain  abnormally  large  amount  at  the 
risk  of  being  discharged.  It  may  be  stated  at  the 
outset  that  no  plan  that  contemplates  forcing  the 
workmen  to  increase  their  output  under  any  condi- 
tions can  hope  for  success.  It  not  only  involves  an 
infringement  on  the  personal  liberty  of  the  workmen, 
but  if  allowed  free  scope  would  permit  a  driving 
employer  to  compel  his  men  to  work  at  breakneck 


384  BUSINESS  PKINCIPLES 

pace.    It  is  for  these  reasons  that  most  workingmen 
are  inalterably  opposed  to  a  task  system,  as  such. 

There  is  no  doubt  that  in  the  hands  of  a  driving 
manager  or  employer  the  task  system  may  degener- 
ate into  a  club  to  force  the  workman  to  complete  a 
certain  amount  of  work  per  day  or  lose  their  jobs. 
And  that,  stated  in  its  barest  terms,  is  what  the 
simple  task  system  above  described  amounts  to. 
Under  wise,  efficient,  and  just  management  such  a 
system  would  result  in  larger  output,  lower  costs  of 
production,  and  higher  wages;  yet  the  workmen  may 
and  usually  will  oppose  it  on  principle,  on  the  ground 
that  it  might  when  once  under  way  be  used  to  secure 
an  excessive  amount  of  work  at  lower  wages  when 
conditions  arise  in  which  the  workmen  could  ill  afford 
to  resist  the  demands  of  the  employer. 

It  may  be  inferred  from  the  foregoing  that  the 
task  system  is  not  bad  in  itself,  but  may  under  certain 
circumstances  put  in  the  hands  of  the  employer  an 
instrument  by  which,  if  he  were  so  inclined,  he  could 
oppress  the  employes  working  under  that  system. 
The  case  is  nearly  parallel  to  that  of  a  trust  which 
has  secured  a  practical  monopoly  of  an  article  of 
general  consumption.  The  monopoly  power  may  not 
be  invoked  to  enhance  prices  to  consumers  or  lower 
prices  to  the  producers  of  the  raw  material,  and  the 
best  interests  of  the  concern  may  be  against  such  a 
proceeding.  But  the  power  to  work  harm  to  the 
community  for  a  greater  or  less  period  of  time  by 
these  measures  is  present,  and  is  therefore  a  constant 
menace.  For  this  reason  a  combination  of  this  sort 
is  held  illegal  under  the  common  law.  The  employer 
may  not  use  the  task  system  to  work  harm  to  the 


EFFICIENCY  AND  WAGES  385 

interests  of  the  laborers,  but  the  power  to  do  so  is 
present  and  may  furnish  a  constant  menace  to  the 
well-being  of  the  men.  For  this  reason  considerable 
opposition  to  the  plan  may  confidently  be  expected 
when  it  is  introduced,  and  unless  this  opposition 
can  be  overcome  by  confidence  in  the  honesty  and 
fair  dealing  oi  the  employer,  will  not  prove  a  success. 

If  in  spite  of  these  obstacles  it  is  believed  that 
the  simple  form  of  task  system  can  be  successfully 
adopted,  it  is  proper  to  inquire  what  measures  should 
be  taken  to  avoid  friction,  to  insure  efficient  opera- 
tion, and  to  gain  the  hearty  support  of  the  workmen. 

Clearly,  no  coercive  measures  of  any  sort  may  be 
taken.  The  workmen  must  come  into  the  plan  of 
their  own  accord,  induced  by  the  prospect  of  high 
wages  and  by  confidence  in  the  employer's  promise 
that  these  wages  will  not  be  cut.  The  best  way  to 
secure  this  is  by  means  of  a  striking  practical  object 
lesson.  Secure  an  intelligent  man  and  train  him  in 
the  new  methods.  Promise  him  an  advance  of  say 
sixty  per  cent  over  his  present  wages  for  accomplish- 
ing his  task,  and  let  him  work  side  by  side  with,  the 
men  who  are  pursuing  the  old  methods  at  the  old 
wages.  If  there  is  danger  of  his  being  intimidated 
into  giving  up  his  work  by  his  fellow  laborers,  he 
may  be  made  an  assistant  foreman  or  job  boss.  Make 
no  attempt  to  over  urge  the  other  employes  to  adopt 
the  same  plan,  but  make  it  plain  that  the  same 
rewards  are  open  to  those  who  will  do  the  same 
amount  of  work,  and  that  there  will  be  positively  no 
reduction  in  the  rate  of  pay.  However  great  may  be 
a  workman's  opposition  to  task  work  on  principle, 
it  is  hard  for  him  to  get  away  from  the  fact  that  next 


386  BUSINESS  PRINCIPLES 

to  Mm  is  a  man  earning  sixty  per  cent  more  wages 
for  following  instructions,  day  in  and  day  out.  As 
time  goes  on  and  it  is  seen  that  the  task,  though 
large,  is  one  that  can  be  performed  without  detri- 
ment to  health,  and  that  with  its  performance  the 
increase  of  pay  goes  steadily  on,  the  men  will  cease 
opposition  based  only  on  a  principle  that  may  have 
no  practical  application.  One  by  one  they  will  ask  to 
be  put  on  the  new  basis. 

As  a  larger  and  larger  number  of  men  take  up  the 
system,  the  increased  output  secured  by  these  effi- 
cient workmen  will  allow  the  manager  gradually  to 
drop  those  who  from  lack  of  ambition,  laziness,  or 
determined  opposition  refuse  to  take  up  work  under 
the  new  basis.  At  the  same  time  it  can  be  made  clear 
that  as  the  standard  set  is  a  reasonable  one  for  a 
first-class  man,  those  who  continually  fail  to  perform 
it  cannot  be  regarded  as  first-class  workmen  and 
must  be  discarded.  It  must  be  made  entirely  plain 
to  each  newcomer  that  he  who  cannot  earn  the  sixty 
per  cent  higher  wages  must  make  way  for  some  other 
workman  who  can.  If  the  system  is  once  under  way 
on  this  basis,  it  may  be  expected  to  meet  with  no 
further  opposition.  The  men  who  come  into  the  plan 
with  a  clear  understanding  of  what  is  expected  of 
them,  who  see  that  the  task  set  can  be  and  is  daily 
performed  by  a  number  of  men,  have  only  themselves 
to  blame  if  they  are  discharged  from  failure  to  come 
up  to  the  mark. 

It  is  only  fair  to  say  that  the  foregoing  plan  will 
not  succeed  in  all  cases.  There  are  bodies  of  work- 
men so  thoroughly  imbued  with  opposition  to  the 
task  method  that  they  will  not  permit  of  its  adoption 


EFFICIENCY  AND  WAGES  387 

under  any  circumstances,  and  may  determine  to  walk 
out  in  a  body  at  the  first  attempt  to  introduce  it.  In 
any  case,  the  greatest  caution  must  be  observed  to 
prevent  the  workmen  from  feeling  that  the  new  plan 
is  opposed  to  their  interests.  If  for  any  reason  they 
have  not  confidence  in  the  good  faith  and  honest 
intentions  of  the  employer,  he  might  as  well  give  up 
all  hope  of  bettering  the  conditions  of  the  workmen 
or  himself  by  the  adoption  of  the  simple  task  system. 
Another  weakness  in  the  simple  task  system  lies 
in  the  difficulty  of  applying  it  justly  during  the 
period  of  transition  from  the  slow  pace  of  the  ordi- 
nary workman  to  the  high  speed  demanded  by  the 
standard  output  of  a  day's  task.  It  is  undoubtedly 
true  that  men  who  have  been  soldiering  some  four 
hundred  per  cent  cannot  at  once  change  to  the  stand- 
ard minimum  time.  Nor  can  a  man  who  is  started  on 
new  work  be  expected  to  do  it  at  first  as  well  or  as 
quickly  as  he  will  later.  A  little  thought  will  show 
that  the  difficulty  Here  is  more  serious  than  it  seems 
at  first.  The  task  idea  embodied  in  scientific  prin- 
ciples demands  that  a  piece  rate  be  set  which  will 
aUow  the  workman  to  earn  thirty  to  one  hundred  per 
cent  above  his  average  wage  in  case  the  work  is  done 
in  standard  time.  This  may  mean,  in  case  workmen 
have  been  soldiering  four  hundred  per  cent,  that  the 
rate  be  cut  to  one-third  of  what  it  was  before.  When 
the  workman  has  come  up  to  standard  time  he  will 
be  earning  on  this  basis  some  thirty-three  per  cent 
more  than  formerly.  The  question  is,  what  will  he 
be  earning  while  he  is  learning  to  do  the  work  in 
standard  time?  If  it  is  difficult  to  learn  the  trick  at 
first,  and  the  new  rates  be  imposed  at  once,  the  work- 


388  BUSINESS  PKINCIPLES 

man  will  suffer  an  immediate  cut  in  wages  of  sixty- 
six  per  cent — a  result  impossible  for  any  man  to  con- 
template with  equanimity.  If  the  old  rate  be  kept 
until  the  man  has  attained  the  mark,  he  will  natu- 
rally be  earning  higher  wages  while  he  is  learning 
than  after  he  has  acquired  the  requisite  skill.  Natu- 
rally under  such  circumstances  he  will  put  off  learn- 
ing the  art  of  doing  the  work  in  minimum  time  as 
long  as  he  thinks  safe — ^in  other  words,  soldier — and 
when  he  has  reached  it  will  feel  aggrieved  that  his 
wages  must  come  down  because  he  has  acquired  skill 
so  fast.  Does  someone  suggest  a  gradual  cut?  Those 
who  have  read  the  preceding  pages  will  remember 
what  dangers  lie  in  the  way  of  the  policy  of  gradual 
reduction  of  piece  rates. 

The  foregoing  difficulties  are  to  be  measiu'ed  by 
the  degree  of  ease  with  which  the  ordinary  workman 
can  attain  standard  time  on  any  particular  job, 
though  in  inverse  ratio.  In  the  case  of  simple  man- 
ual labor  which  anyone  with  health  and  strength  can 
do,  the  conditions  demanded  by  standard  minimum 
time  call  only  for  additional  physical  exertion,  alert- 
ness, and  industriousness.  Whether  a  man  can  per- 
form the  task  or  not  is  very  soon  determined,  and  no 
special  deprivation  attaches  to  starting  the  workman 
on  the  new  basis  at  once.  He  may  even  be  paid  by 
the  day  for  a  short  period  on  condition  that  he  come 
up  to  the  standard  at  the  end  of  the  period  or  drop 
out.  But  where  the  conditions  imposed  by  the  stand- 
ard time  are  difficult  to  learn  and  a  considerable 
period  of  training  is  necessary,  these  simple  meas- 
ures are  not  always  sufficient  to  secure  justice  to  the 
workman  or  to  prevent  his  unnecessary  prolonging 


EFFICIENCY  AND  WAGES  389 

of  the  period  of  apprenticeship.  For  these  reasons 
the  application  of  the  simple  task  system  has  often 
failed  or  proven  unsatisfactory.  It  has  failed  be- 
cause men  were  not  willing  to  accept  the  low  scale 
of  wages  imposed  by  the  system  while  they  were 
learning  to  come  up  to  standard  time.  Where  this 
difficulty  has  been  overcome,  it  has  still  proven 
unsatisfactory  because  many  good  men  in  making 
the  jump  from  low  speed  to  high  speed  failed  to 
make  good  at  first  and  were  dropped  out. 

It  is  evident  from  the  foregoing  that  there  are 
many  sets  of  conditions  under  which  the  simple  task 
system  will  not  meet  all  requirements.  The  ques- 
tion that  now  comes  up  is,  can  we  not  find  some 
system  or  systems  in  which  the  task  idea  with  all 
its  advantages  is  retained,  yet  which  avoids  the  many 
difficulties  which  are  met  with  in  applying  the  simple 
system?  There  are  two  such  systems,  which  have 
been  mentioned  by  name,  but  not  yet  discussed. 
One  of  these  is  provided  by  Mr.  H.  L.  Gantt,  known 
as  "Task  Work  with  a  Bonus,"  invented  and  applied 
by  him  in  the  organization  of  various  industrial 
establishments;  the  other  is  the  invention  of  Dr. 
F.  W.  Taylor,  known  as  "Differential  Rate  Piece 
Work."  Let  us  turn  now  to  a  consideration  of 
these  systems. 

Task  work  with  a  bonus  is  related  on  one  side  to 
the  task  system,  and  on  the  other  to  the  premium 
plan.  It  differs  from  the  simple  task  system  mainly 
in  the  fact  that  there  is  no  severe  and  direct  penalty 
such  as  discharge  imposed  for  failure  to  complete 
the  task;  or,  in  other  words,  for  failure  to  average 
a  certain  standard  of  earnings.    The  workman  who 


390  BUSINESS  PEINCIPLES 

completes  his  task  is  given  a  large  extra  bonus  suf- 
ficient to  induce  him  to  make  all  reasonable  efforts 
to  accomplish  the  amount  of  work  assigned.  The 
advantages  of  the  task  system  are  thus  attained. 
The  man  who  under  the  premium  plan  might  be 
tempted  to  ease  up  for  an  hour  or  so  occasionally 
(we  are  not  speaking,  of  course,  of  necessary  rests 
or  delays)  because  he  feels  that  it  only  means  a  few 
cents  difference  at  the  end  of  the  week,  will  scarcely 
be  so  tempted  when  a  few  minutes'  idleness  may 
make  a  difference  of  fifty  or  sixty  per  cent  in  the 
whole  day's  pay.  Rather  will  he  work  at  his  best 
until  the  bonus  is  earned,  and  then  he  is  free  to  do  as 
he  pleases. 

Task  work  with  a  bonus  shares  with  the  premium 
plan  two  desirable  features.  In  the  first  place  the 
workman  who  does  not  finish  his  task  is  in  the  same 
position  as  he  who  does  not  earn  a  premium:  he  is 
paid  a  given  price  per  hour  which  is  guaranteed, 
receives  his  ordinary  day's  pay,  and  suffers  no  addi- 
tional loss  beyond  that  of  the  extra  premium  or 
bonus.  Second,  both  plans  are  in  themselves  op- 
tional. There  is  no  compulsion  to  the  workmen; 
they  can  take  the  bonus  or  leave  it,  as  they  think 
best.  Of  course  it  is  expected  that  after  the  work- 
men have  seen  one  or  two  of  their  number  adding 
fifty  per  cent  to  their  pay  right  along,  day  after  day, 
they  will  be  eager  to  go  and  do  likewise,  provided, 
of  course,  they  are  guaranteed  against  a  cut  in  the 
rate. 

It  will  be  noted  that  the  bonus  plan  is  a  little 
more  severe  than  the  premium  plan,  in  that  the  addi- 
tional pay  does  not  accrue  until  after  a  certain 


EFFICIENCY  AND  WAGES  391 

standard  of  output  has  been  reached.  But  at  the 
same  time  it  is  more  perfect  in  principle.  As  we  have 
seen,  workmen  will  do  more  when  a  certain  definite 
task  is  assigned.  Under  the  premium  plan  the 
amount  of  work  done  will  vary  with  the  ambition  and 
initiative  of  the  individual,  unassisted  by  any  stand- 
ard as  to  the  amount  that  should  be  done.  Fewer 
men  will  reach  as  high  a  degree  of  productivity  under 
this  plan  than  under  one  where,  so  to  speak,  a  pace 
is  set,  a  definite  goal  is  to  be  reached. 

The  bonus  plan  is  more  mild  than  the  simple  task 
system,  and  for  this  and  other  reasons  is  much  more 
flexible.  Workmen  who  may  well  object  to  a  system 
that  assigns  them  a  task  and  subjects  them  to  the 
penalty  of  discharge  in  case  of  failure  will  feel  much 
more  favorably  disposed  toward  one  that  gives  them 
a  high  reward  in  case  of  success  and  imposes  no  bur- 
dens or  disabilities  in  case  of  failure.  Of  course  the 
bonus  plan  may  be  made  to  differ  in  name  only  from 
the  simple  task  system,  in  that  the  employer  may 
gradually  adopt  the  policy  of  transferring  or  dis- 
charging those  who  persistently  and  regularly  fail 
to  earn  the  bonus.  Some  employers  even  regard  this 
as  one  of  the  best  points  about  the  bonus  plan,  in  that 
it  sounds  so  fair  and  reasonable  that  the  workmen 
will  not  hesitate  about  taking  it  up  in  the  beginning, 
while  the  dropping  of  a  man  here  and  there  is  an 
occurrence  so  ordinary  as  to  excite  little  comment 
and  prevents  the  workmen  from  realizing  that  the 
task  system  pure  and  simple  is  hanging  over  their 
heads. 

It  must  be  admitted  that  the  comparatively  easy 
transition  into  the  more  exacting  (and  more  efficient) 


392  BUSINESS  PEINCIPLES 

task  system  constitutes  a  feature  of  flexibility  in 
favor  of  the  bonus  plan;  but  it  is  doubtful  if  this  shift 
should  be  made  without  definitely  taking  the  work- 
men into  the  employer's  confidence.  In  all  things  it 
pays  the  employer  in  the  long  run  to  be  perfectly 
square  and  open  and  above-board  in  all  dealings  with 
the  men.  Trickery  and  even  subterfuge  will  sooner 
or  later  be  discovered  and  will  create  more  disturb- 
ance when  the  employes  pry  the  secret  loose  of  their 
own  accord  than  if  the  management  announced 
squarely  its  intentions  in  the  first  place.  Besides,  a 
trick  once  tried,  though  it  may  succeed  in  the  first 
instance,  will  so  destroy  the  confidence  of  the  men 
that  it  will  not  succeed  again,  and  the  most  honest 
plans  thereafter  will  be  viewed  with  suspicion  and 
alarm.  If  an  employer,  after  starting  the  bonus 
plan,  decides  that  he  should  get  rid  of  those  who  do 
not  earn  a  bonus  and  keep  only  those  who  do,  it  is 
possible  that  a  gradual  dropping  out  of  the  inefficient 
will  not  for  a  time  arouse  any  suspicion  because  the 
capable  men  who  are  left  will  have  no  grievance. 
But  when  he  tries  to  introduce  the  bonus  plan  in 
another  department  where  the  men  are  opposed  to 
the  task  system,  these  men  will  take  stock  of  what 
has  happened  in  the  other  case  and  jump  to  the  con- 
clusion that  sooner  or  later  those  who  cannot  or  do 
not  wish  to  earn  the  bonus  will  be  shouldered  out  of 
their  jobs. 

But  suppose  a  manager  has  entered  into  the 
bonus  plan  in  good  faith,  and  after  awhile  decides 
that  conditions  are  ripe  for  the  task  system,  by  means 
of  which  he  can  fill  his  department  with  none  but 
first-class   men.    In   that   case   let   him   announce 


EFFICIENCY  AND  WAGES  393 

openly  that  he  intends  to  have  only  first-class  men, 
and  that  after  a  period  of  one  month  or  two  months 
or  three  months,  as  the  case  may  require,  those  who 
cannot  earn  the  bonus  must  expect  to  drop  out.  This 
honest  announcement  will  be  appreciated  for  its  open 
dealing,  and  the  desire  to  have  only  men  of  the  best 
calibre  will  be  understood.  The  granting  of  a  period 
of  time  in  which  the  backward  ones  can  do  their  best 
to  come  up  to  the  mark,  and  if  they  find  they  cannot 
make  it  will  still  have  time  to  look  for  another  job, 
assures  the  men  that  the  employer  is  giving  an  equal 
opportunity  to  all  and  is  anxious  not  to  bring  any 
unexpected  hardship  on  the  incapable  employe  such 
as  a  summary  discharge  would  involve.  Likewise 
those  who  are  unwilling  to  work  under  a  task  plan 
from  principle  will  be  given  plenty  of  opportunity  to 
make  other  arrangements. 

Task  work  with  a  bonus  thus  appears  as  a  val- 
uable stepping  stone  toward  the  more  difficult  but 
more  efficient  simple  task  system.  The  honest  and 
wise  employer  should  not,  however,  inaugurate  the 
bonus  plan  with  the  intention  of  gradually  forcing 
the  straight  task  system  on  the  employes  without 
their  knowledge.  If  the  latter  plan  is  to  be  ulti- 
mately adopted,  let  it  be  clearly  imderstood  before- 
hand that  after  three  months  or  six  months  those 
who  cannot  earn  the  bonus  must  drop  from  the  ranks. 

The  greater  flexibility  of  the  bonus  plan  appears 
in  many  other  instances  than  the  ones  already  cited. 
We  have  already  noted  that  the  length  of  time  in 
changing  from  low  speed  to  the  high  standard  shown 
to  be  possible  by  scientific  experiment  and  study  will 
vary  greatly  with  different  kinds  of  work.    If  the 


394  BUSINESS  PRINCIPLES 

old  time  methods  have  been  exceptionally  wasteful 
and  the  amount  of  soldiering,  either  conscious  or 
unconscious,  amounts  to  several  hundred  per  cent, 
it  may  not  only  take  a  considerable  time  for  the 
workmen  to  attain  to  maximiun  speed,  but  a  bonus 
or  a  premium  that  in  the  end  would  be  reasonable, 
will  at  first  appear  impossibly  small  and  difficult  to 
earn.  Much  of  the  difficulty  arising  f :  om  this  source 
will  be  obviated,  as  we  have  seen,  if  the  management 
can  definitely  demonstrate  that  the  work  can  be  done 
in  say  one-fourth  of  the  time  usually  taken.  Yet  it 
may  be  that  a  long  time  must  elapse  before  the  aver- 
age workman  can  get  up  to  the  maximiun  output,  and 
in  the  meantime  with  the  task  system  he  is  earning 
nothing  extra,  with  the  premium  plan  he  is  earning 
very  little,  and  the  goal  may  appear  too  far  off  to 
give  him  courage  to  proceed. 

Here  the  adaptability  of  Mr.  Gantt's  bonus  plan 
again  becomes  manifest.  An  arrangement  maj  be 
made  to  meet  this  condition  by  which  the  workman 
can  be  given  at  first  a  longer  time  to  do  the  job  and 
yet  earn  his  bonus,  or  some  part  of  the  bonus.  Then 
the  time  can  be  shortened  and  the  bonus  increased, 
the  workman  being  given  clearly  to  understand  that 
he  will  be  expected  in  the  end  to  do  the  work  in  the 
standard  minimum  time  if  he  is  to  earn  the  extra 
reward;  that  the  first  bonus  is  merely  to  give  him 
time  in  which  to  learn  how  to  do  the  work  in 
minimum  time. 

This  plan  with  its  variations  may  become  too  com- 
plex, and  some  managers  prefer  to  give  the  whole 
bonus  all  along  the  line,  simply  shortening  the  time 
in  which  the  job  must  be  done  as  the  workmen  be- 


EFFICIENCY  AND  WAGES  395 

come  more  and  more  skilled.  Others  prefer  to  give 
the  bonus  only  when  the  job  is  done  in  minimmn 
time,  trusting  to  the  common  sense  and  ambition  and 
foresight  of  the  workmen  to  spur  them  to  the  effort 
necessary.  Still  others  prefer  a  string  of  bonuses, 
so  to  speak,  giving  half  of  the  extra  reward  when 
half  the  time  has  been  saved,  and  so  on.  This  latter 
plan  may  appear  on  the  surface  to  be  no  different 
from  the  premium  plan  in  that  there  is  a  graduated 
extra  reward  for  extra  effort.  It  differs,  however, 
in  that  there  are  certain  definitely  marked  periods 
of  advance  for  the  laborer  to  strive  for,  and  a  definite 
goal  set  in  the  end,  thus  securing  all  along  the  line 
the  advantages  of  mapping  out  a  definite  task  to  be 
performed.  Which  of  these  plans  should  be  adopted 
will  depend  upon  the  attitude  of  the  men  and  the 
nature  of  the  work;  and  those  who  have  followed  the 
principles  brought  out  in  the  preceding  pages  will 
experience  little  difficulty  in  determining  what  plan 
will  be  best  suited  to  any  given  set  of  conditions. 

Whether  the  bonus  is  to  be  given  only  when  the 
job  is  completed  in  the  standard  time,  or  is  awarded 
at  some  point  between  this  and  the  ordinary  time, 
the  workman  should  know  definitely  that  the  man- 
agement will  expect  him  to  do  the  work  ultimately 
in  the  quickest  time  that  the  conditions  of  the  case 
make  practicable.  This  quickest  time  should  be 
definitely  stated  on  the  instruction  or  time  cards  or 
both,  so  that  the  workman  will  not  only  have  it  con- 
stantly before  his  eyes,  but  each  time  he  sets  down 
his  own  record  he  will  have  the  standard  staring  him 
in  the  face.  Thus,  if  a  longer  time  is  allowed  at  first 
there  will  be  no  possibility  that  the  men  will  be  under 


396  BUSINESS  PEINCIPLES 

any  misapprehension  that  the  management  does  not 
know  just  how  quickly  the  work  can  be  done.  When 
the  maximum  time  in  which  a  bonus  can  be  earned  is 
reduced  they  will  understand  that  the  reduction  was 
planned  from  the  beginning,  that  the  longer  time 
was  only  a  favor  to  them  to  prevent  hardship  while 
they  were  under  apprenticeship,  and  that  there  is  a 
definite  point  beyond  which  no  further  reductions 
will  be  made. 

In  the  case  of  a  series  of  partial  bonuses  leading 
up  to  the  full  reward  or  of  a  series  of  "times"  for 
which  the  full  bonus  will  be  paid,  it  is  best,  wherever 
possible,  to  have  every  item  set  down  definitely  and 
leave  nothing  undecided  as  to  just  when  each  bonus 
shall  apply  or  when  the  standard  time  is  to  be 
required.  Otherwise  the  workmen  will  be  under  a 
natural  temptation  not  to  learn  any  faster  than  is 
absolutely  necessary.  Where  no  bonus  is  to  be  paid 
until  the  standard  time  is  attained,  the  instruction 
or  time  card  may  read: 

standard  time  (expected  Nov.  1,  1909) 50  minutes.     Bonus  10c 

Time  actually  taken   minutes.     Bonus  . . . 

A  series  of  "times"  leading  up  to  the  standard, 
but  with  a  full  bonus  for  each  succ«fding  record, 
should  place  a  definite  limit  to  the  period  during 
which  each  record  will  entitle  the  workman  to  a 
bonus : 

Standard  time  (Nov.  1,  1909) 50  minutes.  Bonus  10c 

Bonus   allowed   Sept.    1   to    30,    1909,   if   job    is 

done  in  100  minutes.  Bonus  10c 

Bonus    allowed    Oct.    1    to    30,    1909,    if    job    is 

done  in  60  minutes.  Bonus  lOe 

Bate Time  actually  taken minutes.  Bonus  . . . 


EFFICIENCY  AND  WAGES  897 

Similarly  a  series  of  partial  bonuses  with  grad- 
uated times,  leading  up  to  the  standard  with  the  full 
bonus,  should  be  equally  definite : 

standard  time  (Nov.  1,  1909) 50  minutes.  Bonus  10c 

August  1  to  31,  1909,  if  job  is  done  in 120  minutes.  Bonus  5c 

Sept.  1  to  30,  1909,  if  job  is  done  in 100  minutes.  Bonus  6c 

Oct.  1  to  30,  1909,  if  job  is  done  in 60  minutes.  Bonus  8c 

Date Time  actually  taken minutes.  Bonus  . . . 

Delimitation  so  close  and  precise  as  this  will  not, 
of  course,  be  possible  if  the  management  has  had  no 
experience  in  training  the  men  up  to  the  standard 
time  and  has  no  means  of  knowing  how  long  the 
period  of  apprenticeship  should  be.  It  might  seem 
that  the  advantages  of  stating  definitely  to  the  men 
just  what  they  are  expected  to  do  and  just  what  they 
can  earn  for  three  or  four  months  ahead  would  justify 
a  manager  or  foreman  in  making  an  estimate  and 
sticking  to  the  schedule  to  avoid  all  possibility  of 
misunderstanding.  This  is  true  if  the  estimate  is 
liberal  enough  to  give  everybody  all  the  opportunity 
that  can  reasonably  be  expected  to  enable  them  to 
attain  the  maximum  output.  If  not,  some  really 
good  men  are  liable  to  find  the  pace  too  severe  at  first 
and  in  consequence  find  themselves  unjustly  dropped 
from  the  ranks. 

For  it  should  be  understood  that  the  schedule, 
once  made  out,  must  be  strictly  adhered  to.  If  ex- 
ceptions are  made  here  and  there,  everyone  will  feel 
that  he  is  as  much  entitled  to  an  exception  as  the  next 
man,  and  the  whole  scheme  is  liable  to  fall  through. 
A  backward  step  is  fatal.  No  plan  can  be  **  tried 
out"  and  hope  to  succeed.  Those  that  must  go 
through  are  the  only  ones  that  bring  results.   It  may 


398  BUSINESS  PEINCIPLES 

therefore  be  better  for  a  manager  to  give  himself 
some  discretion  by  not  imposing  a  fixed  schedule 
than  to  set  up  blindly  a  series  of  records  and  bonuses 
and  time  limits  that  will  prove  unwieldy  and  unjust 
in  actual  operation. 

There  are  many  classes  of  work  in  which  the 
bonus  plan  is  to  be  preferred  over  the  simple  task 
system,  not  as  a  stepping  stone  to  the  latter  but  as  a 
system  to  be  adhered  to  permanently.  The  simple 
task  plan  can  best  be  applied  where  the  work  from 
day  to  day  is  absolutely  unvarying  and  where  the 
workman  can  acquire  the  automatic  skill  and  dex- 
terity that  goes  with  tasks  that  are  repeated  day 
after  day.  We  have  already  noted  that  wherever 
possible  the  principle  of  division  of  labor  should  be 
applied  so  that  each  man  will  have  as  few  separate 
and  distinct  kinds  of  work  to  perform  as  the  con- 
ditions of  the  establishment  will  allow.  There  are, 
however,  and  always  will  be,  men  whose  work  must 
be  varied  more  or  less  from  day  to  day,  because  the 
organization  has  not  reached  the  point  where  a  sepa- 
rate body  of  men  can  be  detailed  off  to  perform  a 
single  set  of  operations.  This  represents  one  of  the 
many  cases  where  the  absolute  minimum  standard 
time  cannot  be  fully  insisted  upon  in  making  up  a 
day's  task,  because  work  that  is  done  even  every 
other  two  or  three  days  cannot  as  a  rule  be  done  as 
quickly  as  routine  work  that  comes  every  day.  It 
can  easily  be  seen,  too,  that  the  simple  task  plan 
cannot  be  well  applied  here,  because  all  men  cannot 
turn  from  one  kind  of  work  to  another  with  equal 
adaptability,  even  though  they  be  first-class  men  in 
other  respects.    But  the  bonus  plan  at  least  guaran- 


EFFICIENCY  AND  WAGES  399 

tees  the  full  day's  wage,  and  the  man  who  falls  short 
of  the  maximum  output  need  not  fear  the  loss  of  his 
job  as  in  the  task  system.  In  this  case  no  attempt 
should  be  made  to  change  over  from  the  bonus  plan 
to  the  simple  task  system,  unless  indeed  the  various 
jobs  are  so  nearly  alike  that  no  difficulty  is  experi- 
enced in  changing  from  one  to  the  other.  In  case 
there  is  a  wide  difference  in  the  nature  of  the  several 
kinds  of  work  it  is  better  to  set  a  rather  lower  task 
than  otherwise.  A  comparatively  low  task  that  is 
tried  for  by  the  average  man  is  better  than  one  set 
so  high  that  most  of  the  men  will  be  content  to  take 
their  hourly  wage  and  work  at  a  leisurely  pace. 

Somewhat  analagous  to  the  foregoing  is  the  case 
where  standard  work  comes  in  irregularly,  say  from 
three  to  five  days  a  week.  The  men  who  do  this  work 
must  be  employed  continuously,  but  when  their  regu- 
lar work  is  not  at  hand  they  are  distributed  at  vari- 
ous jobs  throughout  the  establishment,  according  as 
one  department  or  another  has  need  of  extra  help. 
The  bonus  plan  can  be  applied  to  their  regular  work, 
and  while  they  are  foraging  around,  so  to  speak,  they 
are  sure  of  their  usual  day's  pay. 

Another  advantage  in  point  of  flexibility  claimed 
for  Mr.  Gantt's  bonus  plan  applies  to  work  of  the 
same  nature  that  under  certain  conditions  has  to  be 
done  by  two  widely  different  grades  of  labor.  Sup- 
pose as  in  the  last  case  that  the  work  that  comes  in 
irregularly  must  be  done  by  especially  high  priced 
and  skillful  mechanics.  The  work  that  they  are 
especially  kept  for  may  come  in  very  irregularly,  so 
that  there  may  be  periods  of  considerable  length  dur- 
ing which  work  of  a  different  nature  must  be  found 


400  BUSINESS  PKINCIPLES 

for  them  elsewhere.  If  they  are  put  on  piece  work 
with  less  efficient,  lower  priced  men,  and  the  rate  per 
piece  has  been  adjusted  to  the  lower  grade  of  labor, 
they  will  earn  less  than  their  average  rate  of  wages. 
Of  course,  to  put  two  piece  prices  on  this  work,  one 
for  the  average  man  and  a  higher  one  for  these  spe- 
cial men,  will  cause  the  greatest  feeling  of  dissatis- 
faction and  injustice  on  the  part  of  those  who  must 
work  at  the  lower  rate.  In  this  case  it  is  said  a 
bonus  can  be  fixed  on  work  of  this  kind,  to  be  paid  to 
all,  but  so  graded  that  only  the  more  efficient  high 
priced  men  can  earn  it  ordinarily. 

This  arrangement  appears  of  doubtful  practical 
expediency  in  ordinary  cases.  In  the  first  place  it 
is  hardly  probable  that  the  high  priced  man,  how- 
ever skillful  and  efficient  he  may  be  at  his  own  kind 
of  work,  will  be  superior  to  the  low  priced  laborer 
at  work  with  which  the  latter  has  become  familiar 
by  long  experience  and  practice.  In  other  words, 
it  is  doubtful  if  the  bonus  could  be  arranged  on  equal 
terms  for  all  so  that  the  high  priced  man  alone  could 
earn  it.  Second,  if  the  specially  skilled  mechanic  is 
so  much  superior  to  the  ordinary  man  at  his  lower 
grade  of  work,  a  simple  piece  price  would  enable 
him  to  earn  more  than  the  other — ^though  it  is  pos- 
sible he  might  not  earn  enough  more  to  make  up  his 
average  wage.  Third,  if  the  laborer  of  lower  grade 
is  working  on  a  task  system,  it  is  unfair  to  him  to 
set  the  task  so  high  that  he  could  not  earn  a  bonus, 
and  the  plan  would  thus  carry  with  it  relative  inef- 
ficiency in  the  lower  grade  of  labor.  If  the  work  is 
of  such  a  nature  that  the  higher  classed  man  could 
really  do  more  than  the  lower  classed  man  at  his 


EFFICIENCY  AND  WAGES  401 

own  kind  of  work,  two  bonuses  could  be  arranged,  a 
higher  and  a  lower  one,  but  this  would  rarely  occur. 
Perhaps  the  best  solution  of  a  difficulty  of  this  kind 
is  to  pay  the  two  grades  of  men  on  entirely  different 
plans,  the  special  mechanic  receiving  his  ordinary 
hourly  rate  of  pay  and  the  others  working  by  the 
piece  with  a  premium  or  bonus  and  task  system. 
Then  it  will  be  recognized  readily  enough  that  the 
two  grades  of  labor  are  not  competing  with  each 
other  or  working  on  the  same  basis,  and  that  the 
higher  grade  man  is  simply  filling  in  his  time  tem- 
porarily until  his  own  kind  of  work  comes  along. 

Various  and  ingenious  plans  have  been  invented 
to  meet  this  special  case,  but  as  a  discussion  of  these 
would  carry  us  too  far  afield  into  a  subject  that  is 
not  of  exceptional  importance,  it  is  best  to  keep  to 
the  main  highway. 

We  come  now  to  a  consideration  of  the  differen- 
tial rate  piece  system  invented  by  Dr.  F.  W.  Taylor, 
and  applied  by  him  and  others  to  many  kinds  of 
work.  It  stands  logically  between  the  simple  task 
system  and  the  bonus  plan  in  point  of  severity  in 
the  adjustment  of  wages  and  in  the  power  of  the 
stimulus  it  applies  to  the  workmen.  The  differential 
rate  carries  with  it  the  task  idea  in  that  the  employe 
is  given  a  special  inducement  to  perform  a  given 
amount  of  work  in  a  day  by  the  payment  of  a  bonus, 
but  is  not  threatened  with  the  loss  of  his  job  in  case 
of  failure,  as  in  the  simple  task  system.  In  place 
of  this  penalty  another  is  substituted,  namely,  a 
wage  lower  than  normal  for  those  who  fail.  In  task 
work  with  a  bonus  the  man  who  fails  to  perform  his 
assigned  amount  of  work  receives  at  least  his  aver- 


402  BUSINESS  PEINCIPLES 

age  rate  of  wages,  and  loses  only  the  large  extra  re- 
ward that  is  paid  to  those  who  succeed.  Whether 
he  falls  short  of  this  task  to  the  extent  of  only  five 
minutes  or  half  a  day,  the  pay  is  the  same — the  giv- 
en price  per  hour.  With  the  differential  rate  not 
only  is  a  penalty  attached  to  failure  to  perform  the 
task,  but  the  penalty  is  made  proportionate  to  the 
degree  or  extent  of  failure.  The  man  who  falls 
short  of  his  task  is  made  to  lose  not  only  the  large 
bonus;  he  suffers  the  direct  loss  of  the  piece  price 
on  each  piece  by  which  he  falls  short.  A  concrete 
example  will  serve  to  illustrate  the  workings  of  this 
system: 

Suppose  a  certain  piece  of  work  has  been  made 
the  subject  of  time  study  and  experiment,  and  it  has 
been  determined  that  an  average  man  can  turn  out 
ten  pieces  per  day  when  working  at  his  best.  The 
general  rate  of  pay  for  that  grade  of  labor  has  been 
$2.50  per  day.  It  is  decided  to  put  the  work  on  a 
differential  piece  rate  basis.  The  men  are  then  told 
that  they  will  be  paid  25  cents  per  piece,  but  if  they 
succeed  in  turning  out  ten  pieces  or  more  per  day 
they  will  be  given  35  cents  per  piece.  One  queer 
result  of  this  system  is  that  nobody  will  earn  just 
his  average  day's  wage.  In  the  illustration  each 
workman  will  either  earn  upwards  of  $3.50  a  day, 
or  less  than  $2.50.  Incidentally  the  illustration 
shows  how  powerful  is  the  stimulus  supplied  by  the 
task  system.  The  difference  between  nine  and  a 
half  pieces  and  ten  with  simple  piece  work  would  be 
only  eight  or  nine  cents,  which  with  many  men 
would  not  be  sufficient  to  offset  the  pleasure  of  half 
an  hour's  leisure  toward  the  close  of  the  day.    With 


EFFICIENCY  AND  WAGES  403 

the  premium  plan  the  extra  half  hour  would  mean 
only  three  or  four  cents.  With  the  bonus  plan  it 
means  a  dollar's  difference  in  the  day's  wages, 
though  the  normal  wage  be  guaranteed.  With  the 
differential  rate  system  not  only  is  the  dollar  bonus 
lost,  but  the  half  piece  left  unfinished  causes  a  loss 
of  an  additional  twelve  and  a  half  cents  from  the 
normal  wage.  Nor  do  the  mere  figures  tell  the 
whole  story.  There  is  an  undoubted  stimulus  to  good 
work  in  the  fact  that  the  workmen  can  idle  as  much 
as  he  pleases  after  he  has  finished  his  stint  without 
I  any  objection  on  the  part  of  the  foreman  and  with- 
out any  uncomfortable  feeling  on  his  part  that  he  is 
wasting  valuable  time. 

The  advantage  of  the  differential  rate  over  task 
work  with  a  bonus  lies  in  the  fact  that  the  bonus 
plan  furnishes  no  incentive  at  all  to  the  man  who  for 
one  reason  or  another  finds  it  impossible  for  him  to 
make  the  bonus  on  any  particular  day.  Suppose  a 
man  has  made  a  few  blunders  in  the  early  part  of 
the  day,  requiring  him  to  waste  half  an  hour  or  more 
doing  his  work  over  again.  Of  course  accidental  de- 
lays and  the  like  should  be  taken  into  account  in 
making  up  a  day's  task,  but  there  will  come  to  every 
workman  days  when  everything  seems  to  go  wrong 
and  he  may  find  himself  at  nine  or  ten  o'clock  hope- 
lessly behind  in  his  rate  for  the  bonus.  If  his  aver- 
age wage  is  guaranteed  he  is  liable  under  the  cir- 
cumstances to  say  to  himself,  ** There,  I've  lost  the 
extra  dollar  for  today;  I  might  as  well  give  myself  a 
vacation  for  the  rest  of  the  day!"  So  he  soldiers  as 
much  as  he  dares  until  closing  time,  taking  his  share 


404  BUSINESS  PRINCIPLES 

of  the  day's  good  things  in  the  form  of  ease  and 
leisure  instead  of  money. 

With  the  differential  rate  the  man  who  loses  hope 
of  the  bonus  early  in  the  day  is  liable  to  lose  even 
more  if  he  does  not  do  his  best  up  to  the  time  of 
closing.  Every  piece  by  which  he  falls  short  of  the 
standard  represents  a  distinct  money  loss.  He  can- 
not afford  to  **take  it  easy";  since  he  cannot  earn 
extra  wages  he  must  even  forge  ahead  as  fast  as  he 
can  and  come  as  near  as  possible  to  earning  his 
normal  wage. 

The  merits  of  the  differential  rate  system  make 
it  the  best  for  certain  kinds  of  work.  It  is  particu- 
larly useful  where  the  same  task  is  to  be  repeated 
day  after  day,  where  the  maximum  output  at  the 
lowest  possible  cost  is  a  prime  consideration,  and 
where  valuable  plant  and  machinery  call  impera- 
tively for  rapid  movement  of  stock  and  the  elimina- 
tion of  wasted  time  in  the  operations  of  production. 

Yet  the  limits  within  which  the  differential  rate 
should  confine  itself  are  clearly  defined.  The  severe 
pressure  of  an  automatic  and  precise  penalty  pre- 
cludes it  from  being  applied  where  there  is  very  much 
danger  from  any  other  cause  than  deliberate  soldier- 
ing on  the  part  of  the  workman,  that  the  task  will  not 
be  finished.  Thus  during  the  difficult  period  of  ap- 
prenticeship, while  the  workman  is  changing  from  a 
slow  pace  to  high  speed,  or  while  new  work  is  being 
introduced,  it  is  only  fair  and  just  to  guarantee  the 
average  day's  wage.  Where  the  work  varies  more 
or  less  from  day  to  day  it  may  be  advisable  to  en- 
courage those  who  can  quickly  adjust  themslves  to 
changing  conditions  by  offering  a  bonus,  but  it  is 


EFFICIENCY  AND  WAGES  405 

hardly  fair  to  penalize  good  workmen  who  require 
the  steady  swing  of  work  that  is  repeated  day  after 
day  to  reach  the  maximum  output.  In  fact,  the  '  *  jack 
of  all  trades"  who  can  do  almost  anything  fairly  well 
is  liable  not  to  be  so  capable  at  steady  routine  work 
as  the  man  who  can  plug  steadily  along  on  one  job 
until  he  becomes  an  expert  in  his  line.  The  bonus 
plan  will  give  the  wide  awake  and  efficient  manager 
an  opportunity  to  sort  out  the  routine  workers  from 
the  "general  utility"  men  and  in  the  meantime  will 
insure  justice  and  equal  opportunity  to  all. 

In  conclusion  it  should  be  noted  that  the  most 
effective  and  most  scientific  systems  of  paying  wages 
depend  for  their  success  on  the  standardization  of  all 
conditions,  large  and  small,  surrounding  the  work. 
In  none  of  its  forms  can  the  task  system  prove  suc- 
cessful unless  all  the  workmen  are  using  the  same 
standard  tools  and  appliances  and  pursuing  the  same 
methods.  The  slightest  variation  will  prevent  not 
only  a  determination  of  the  amount  of  work  that 
should  go  to  make  up  a  task,  but  will  hinder  or  pre- 
vent the  performance  of  the  task  assigned  on  the  part 
of  the  men  laboring  under  less  favorable  conditions. 
And  where  a  definite  amount  of  output  is  expected 
from  each  man  it  is  doubly  important  that  the  condi- 
tions surrounding  the  work  should  be  such  as  to 
furnish  an  equal  opportunity  to  all. 


CHAPTER  XVI. 

RELATIONS  BETWEEN  EMPLOYER  AND  EM- 
PLOYED. 

A  broad  discussion  of  the  relations  that  do  exist 
and  of  those  that  should  exist  between  the  employer 
and  his  men  would  carry  us  deep  into  the  mighty 
unsolved  problems  of  capital  and  labor,  about  which 
so  many  weighty  books  have  been  written,  so  many 
great-minded  theories  have  been  promulgated,  so 
many  industrial  wars  have  been  waged.  He  who 
would  attempt  to  enter  this  great  arena  for  only  a 
brief  period  and  with  untried  weapons  must  expect 
to  cut  but  a  sorry  figure.  The  limitations  imposed 
by  time  and  space  alone  would  be  sufficient  to  compel 
us  to  stand  outside  the  field  of  conflict,  and  point  out 
in  hasty  review  some  of  the  features  of  the  industrial 
warfare.  If  there  are  many  problems  that  we  cannot 
hope  to  solve,  there  are  also  many  unhappy  condi- 
tions that  common  sense  has  helped  to  improve,  and 
we  shall  make  a  step  forward  if  we  observe  and  learn 
by  the  experience  of  wise  and  successful  men. 

From  the  point  of  view  of  the  employer  one  of  the 
commonest  and  most  grievous  obstacles  to  the  free 
and  imtrammeled  management  of  his  business  is  the 
combination  of  employes  and  workingmen  generally 
into  labor  imions.    So  serious  has  been  the  distress 

407 


408  BUSINESS  PRINCIPLES 

caused  both  to  business  enterpise  and  to  the  public 
generally  by  the  attempts  of  organized  labor  to  en- 
force its  demands,  that  we  may  well  enquire  whether 
workingmen  have  a  right  to  combine  for  the  purpose 
of  raising  wages  and  otherwise  changing  the  condi- 
tions of  employment. 

It  is  well  known  that  under  the  common  law 
agreements  aiming  to  raise  prices  are  criminal.  In 
the  early  English  and  American  cases  labor  was  re- 
garded as  a  commodity,  and  combinations  among 
workingmen  for  the  purpose  of  raising  wages  were 
very  frequently  held  to  be  criminal  conspiracies. 
One  of  the  earliest  cases  in  this  country  was  that  of 
People  vs.  Fisher  in  1835  (14  Wendell,  9),  where  cer- 
tain journeymen  shoemakers  in  New  York  had  com- 
bined for  the  purpose  of  fixing  the  wages  of  members 
of  the  combination.  Strange  as  it  seems  to  us 
now,  these  men  were  indicted  under  the  law  which 
declared  that  if  two  or  more  persons  should  conspire 
to  commit  an  act  injurious  to  trade  or  commerce  they 
should  be  deemed  guilty  of  a  misdemeanor.  The 
court  held  that  a  combination  to  raise  wages  was 
injurious  to  trade  or  commerce,  in  that  the  best  in- 
terests of  society  demands  ''that  the  price  of  labor 
be  left  to  regulate  itself,  or  rather  be  limited  by  the 
demand  for  it. " 

Let  us  see  whether  it  is  just  to  regard  labor  as  no 
different  from  any  other  conamodity,  and  to  insist 
that  free  competition  determine  its  price.  It  is  clear 
enough  that  combinations  of  laborers  may  injure 
both  trade  and  commerce,  stop  the  wheels  of  indus- 
try, and  compel  the  public  to  pay  more  for  an  article 
of  convenience  or  necessity  than  would  be  the  case  if 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     409 

there  were  no  such  things  as  unions,  strikes,  or  lock- 
outs. At  first  sight  it  would  seem  that  men  who  have 
labor  to  sell  are  in  the  same  position  as  men  who  have 
boots  and  shoes,  and  a  combination  to  force  up  the 
price  of  labor  should  be  deemed  as  guilty  as  a  con- 
spiracy of  the  boot  and  shoe  men  to  put  up  their 
prices,  since  both  are  admittedly  injurious  to  the  pub- 
lic interest.  Yet  when  we  look  more  closely  we  see 
that  labor  differs  in  many  respects  from  more  tangi- 
ble commodities,  and  the  effort  to  prevent  the  laborer 
from  disposing  of  his  product  to  the  very  best  advan- 
tage carries  with  it  greater  injustice  than  when  simi- 
lar restrictions  are  placed  on  the  sale  of  other 
products. 

First,  the  laborer  is  at  a  distinct  disadvantage  in 
bargaining  for  the  price  of  his  labor.  Whether  he 
obtains  a  good  price  or  not  may  make  all  the  differ- 
ence between  imminent  starvation  for  himself  and 
those  dependent  on  him,  and  comparative  comfort. 
The  capitalist  employer  has  all  the  ammunition  in 
this  kind  of  warfare.  If  he  does  not  hire  one  man, 
another  will  suit  him  just  as  well.  The  man  who 
cannot  sell  his  labor  is  plunged  into  privation  and 
misery;  the  man  who  does  not  buy  it  suffers  at  most 
only  a  temporary  inconvenience,  a  small  loss  that 
means  little  to  him.  For  this  reason  the  employer  is 
frequently  in  a  position  to  force  laborers  to  take  a 
price  far  below  what  their  commodity  is  worth;  and 
unless  they  can  combine  and  make  their  cause  a  com- 
mon one,  injustice  may  be  done  resulting  in  unhappi- 
ness  and  actual  want  to  a  large  body  of  men.  Nor 
is  it  to  be  denied  that  employers  as  a  class  are 
sharper,  brighter,  quicker- witted  and  better  informed 


410  BUSINESS  PEINCIPLBS 

than  the  laborers.  This  is  a  factor  which,  even 
though  other  conditions  were  equal,  would  enable 
them  to  get  the  better  of  any  transaction  involving 
the  sale  and  purchase  of  labor. 

Again,  labor  is  not  like  other  commodities  in  that 
it  is  extremely  perishable.  The  vendors  of  most  arti- 
cles of  commerce  can  afford  to  wait,  to  hold  their 
products  for  a  better  price.  Labor,  on  the  other 
hand,  perishes  in  the  waiting.  The  laborer  who  holds 
off  for  a  month  for  a  better  price  loses  a  month's 
wage.  His  product  must  be  sold  at  once  for  the  best 
price  it  will  bring,  for  it  steadily  deteriorates  if  not 
sold. 

Labor  cannot  seek  the  best  market;  it  is,  more 
than  any  other  commodity,  immobile.  If  the  price 
of  shoes  happens  to  be  low  in  Massachusetts  they  can 
be  sent  at  little  cost  to  California  or  Texas,  where  the 
price  is  higher.  But  the  laborer  is  tied  by  many 
bonds  to  a  single  locality.  Not  only  is  the  cost  of 
transportation  for  himself  to  be  considered  but  he 
may  have  a  wife  and  family  and  home  interests  that 
he  cannot  leave  without  large  sacrifice. 

Another  disadvantage  against  which  the  seller 
of  labor  contends  lies  in  the  fact  that  labor  is  the  ulti- 
mate product  by  means  of  which  a  man  may  gain  his 
livelihood.  If  a  man  has  nothing  else,  he  has  at  least 
the  work  of  his  hands  to  stand  between  him  and 
starvation.  He  who  has  lands  and  chattels  and 
stores  in  his  granaries  may  sell  them  and  secure  the 
necessities  of  life ;  if  he  cannot  sell  them  he  may  use 
them  up  himself;  and  lastly,  if  their  sale  or  consump- 
tion wiU  not  give  him  all  he  wants,  he  still  has  labor 
to  fall  back  on.    The  man  who  has  labor  alone  to  sell 


RELATIONS  OF  EMPLOYER  AND  EMPLOYED     411 

has  nothing  else  to  fall  back  on;  and  the  natural  dis- 
advantages he  has  to  contend  with  in  doing  so  makes 
it  imperative  that  none  but  the  most  necessary  re- 
strictions be  placed  on  his  powers  of  bargaining. 

These  considerations,  together  with  many  others, 
combined  to  break  down  the  legal  theory  that  labor 
must  be  treated  as  any  other  commodity.  ** Wages," 
it  was  argued,  *' should  be  determined  by  the  fair 
proportion  that  labor  had  contributed  in  production. 
The  market  price  determined  by  supply  and  demand 
might  or  might  not  be  fair  wages;  often  it  was  not, 
and  as  long  as  workmen  were  not  free,  by  combina- 
tions, to  insist  on  their  right  to  fair  wages,  oppres- 
sion by  capital,  or  which  is  the  same  thing,  by  their 
employers,  followed."*  From  about  the  middle  of 
the  century  the  practice  of  holding  labor  combina- 
tions as  criminal  ceased,  and  the  states  enacted  legis- 
lation relieving  workmen  from  the  penalties  of  what 
had  so  long  been  declared  unlawful  combinations  or 
conspiracies. 

As  will  be  seen  from  this  brief  historical  review, 
the  formation  and  operations  of  labor  unions  are  of 
comparatively  recent  growth.  It  is  not  our  purpose 
to  trace  the  rise  of  unionism  or  to  give  an  account 
of  its  far-reaching  influence  on  the  relations  of  labor 
and  capital.  It  may  be  worth  while  however,  to 
point  out  some  phases  of  trade  unionism  that  affect 
the  personal  relations  between  employers  and  em- 
ployes, that  bring  good  or  ill  to  the  interests  of  both. 

Part  of  the  good  that  labor  unions  have  done  is 
indicated  in  the  review  given  above  of  the  disadvan- 
tageous conditions  under  which  the  laborer  must  sell 

♦Argument  of  the  Court  in  Cote  vs.  Murphj,  159  Pa.  St.,  429  (1894). 


412  BUSINESS  PKINCIPLES 

his  commodity.  Unions  have  increased  wages  that 
were  too  low,  shortened  hours  that  were  too  long. 
They  have  increased  the  health  and  safety  of  the 
workingmen  by  introducing  government  factory  in- 
spection, with  laws  providing  for  certain  standards 
of  light,  heat,  air,  and  safety  appliances  in  the  work. 
They  have  partially  eliminated  child  labor  and  done 
other  useful,  excellent  and  beautiful  things.  All  of 
these  have  redounded  to  the  direct  advancement  of 
the  public  weal  and  more  or  less  directly  to  the  ad- 
vantage of  employers.  In  increasing  the  health  and 
contentment  of  employes  there  is  always  a  gain  in 
efficiency,  but  many  employers  are  too  short-sighted 
to  see  this  until  it  is  forced  upon  them.  So  far  so 
good. 

But  many  labor  unions  are  swayed  in  their  actions 
by  theories  that  are  false  and  are  moved  by  aims  that 
are  contrary  to  the  public  interest.  The  lump  of 
labor  theory  is  responsible  in  hundreds  of  unions  for 
rules  and  regulations  that  are  disastrous  to  the  in- 
terests both  of  employer  and  employe.  With  the  idea 
that  there  is  a  fixed  amount  of  work  that  must  be 
done,  unions  generally  attempt  to  limit  the  amount 
each  man  shall  do  with  the  purpose  of  leaving  more 
positions  open  for  other  men  or  of  creating  a  scarcity 
in  the  labor  market  which  will  give  the  men  in  any 
trade  an  opportunity  to  demand  higher  wages.  We 
cannot  refute  the  lump  of  labor  theory  in  full;  but 
it  is  obvious  that  restriction  of  output  leads  to  higher 
costs  of  production,  which  in  turn  leads  to  lower 
profits  or  even  losses  to  the  capitalist.  Men  are  in- 
duced to  invest  their  money  in  business  undertakings 
(and  so  create  a  demand  for  labor)  solely  by  the  pros- 


RELATIONS  OF  EMPLOYEE  AND  EMPLOYED     413 

pect  of  profit.  If  in  any  trade  the  union  rules  re- 
strict output  so  as  to  lower  profits,  men  will  with- 
draw capital  from  that  industry.  The  net  result  will 
be  therefore  to  restrict  rather  than  to  enlarge  the 
demand  for  labor.  The  undertakings  from  which 
capital  is  withdrawn  pay  not  more  for  labor,  but  less. 
In  trades  where  piece  work  is  the  rule,  a  corollary 
to  restriction  of  output  is  to  forbid  any  man  to  earn 
more  than  so  much.  Where  this  rule  is  applied  solely 
to  prevent  employers  from  cutting  piece  rates,  we 
have  seen  that  the  workmen  have  little  to  gain  and 
much  to  lose  by  not  holding  back.  But  where  the 
workman  is  guaranteed  against  a  lowering  of  the 
rates,  and  the  union  rule  is  enforced  simply  to  ''make 
work"  for  others,  such  a  policy  is  obviously  detri- 
mental to  the  interests  of  all  concerned.  The  work- 
man is  then  cut  off  from  the  earnings  that  his  energy 
and  ability  would  entitle  him;  the  employer's  profits 
are  cut  down  by  high  costs  of  production;  while  the 
withdrawal  of  capital  from  the  unprofitable  industry 
will  ultimately  cost  the  workmen  even  the  small 
wages  they  are  allowed  to  make.  Keverse  the  condi- 
tions and  the  results  appear  in  brighter  colors.  Let 
the  workman  be  allowed  to  earn  as  much  as  he  can 
without  fear  of  rate  cutting  and  suspend  the  union 
rule.  The  able  men  will  then  draw  wages  in  propor- 
tion to  their  industry  and  skill.  The  employer's  pro- 
fits increase,  but  this  increase  does  not  come  out  of 
wages;  it  comes  from  a  lower  "overhead"  cost,  in 
that  his  machines  run  faster,  his  stock  moves  more 
quickly,  his  capital  is  turned  over  more  rapidly. 
Lastly,  this  increase  of  profits  attracts  other  men 
into  the  industry  and  the  demand  for  labor  in  that 


414  BUSINESS  PRINCIPLES 

trade  increases.  The  policy  of  freedom  ** makes" 
work  where  the  policy  of  limitation  of  output  de- 
stroys it. 

Unfortunately  this  sensible  policy  will  be  found 
contrary  to  the  beliefs  and  practices  of  most  unions, 
because  it  emphasizes  the  fact  that  the  employers' 
and  employes'  interests  can  be  combined.  Most 
unions  are  far  too  neglectful  of  the  fact  that  the  in- 
terest of  the  business  that  supplies  them  work  is  as 
much  entitled  to  their  careful  consideration  and  intel- 
ligent support  as  the  scale  of  wages  paid  to  the  men. 

On  another  ground  the  limitation  of  output  is 
unfair  to  the  men  and  disastrous  to  the  industry 
where  it  is  in  force.  Whenever  the  rule,  *' Workmen 
should  not  be  asked  to  do  more  than  a  fair  day's 
work"  is  necessary  to  prevent  sweat-shop  methods 
and  sixteen  hour  days,  it  is  right  and  just.  But  this 
is  rarely  the  motive;  the  intention  is  to  make  the 
work  last.  If  the  union  admitted  only  first-class 
men,  the  rule  might  be  applied  without  doing  special 
harm.  But  as  a  rule  unions  admit  to  membership 
any  man  who  will  pay  the  dues,  and  as  a  consequence 
the  ''fair  day's  work"  must  be  set  at  the  amount  that 
the  slowest  and  most  inefficient  workman  can  do. 
Now  it  is  apparent  that  the  industry  must  either 
make  a  normal  profit  or  go  to  the  wall.  The  union 
rule  practically  compels  the  employer  to  hire  only 
men  equal  in  their  output  to  that  of  the  slowest  and 
most  inferior  grade  of  workmen.  If  the  industry  is 
to  make  a  profit  at  all,  the  wages  paid  can  be  only 
what  the  poorest  man  in  the  union  is  worth.  The 
capable  and  efficient  workmen  are  therefore  com- 
pelled to  work  for  lower  wages  than  they  could  other- 


EELATIONS  OF  EMPLOYEE  AND  EMPLOYED     415 

wise  earn.  The  rule  therefore  subverts  the  object 
of  the  union  to  secure  higher  wages;  and  any  scheme 
which  curtails  the  output  thereby  increases  the  cost 
of  production  and  tends  to  lower  wages  in  the  long 
run. 

An  illustration  of  the  absurd  lengths  to  which 
restriction  of  output  can  be  carried  is  furnished  in 
certain  of  the  English  building  trades.  The  limita- 
tion of  output  has  gone  to  such  a  point  that  in  many 
cases  the  workmen  sit  around  a  large  part  of  the 
day  doing  nothing.  Not  many  years  ago  bids  were 
solicited  for  a  building  in  London  that  had  to  be 
finished  in  three  months.  The  English  contractors 
all  fought  shy  of  a  contract,  declaring  it  to  be  im- 
possible to  put  up  such  a  building  within  the  stated 
time.  An  American  contractor  who  had  made  some 
study  of  the  British  workman's  methods  took  the 
job  and  imported  a  body  of  American  laborers.  He 
had  to  pay  them,  of  course,  about  three  times  the 
wages  prevalent  in  England,  and  every  one  expected 
him  to  lose  money.  As  a  matter  of  fact,  he  had  dis- 
covered that  English  trade  union  rules  restricted 
each  man's  output  so  narrowly  that  the  wages  paid, 
low  as  they  were,  became  excessive.  For  instance, 
a  bricklayer  was  allowed  to  lay  only  five  hundred 
bricks  a  day;  his  American  workmen  laid  two  or 
three  thousand  without  working  extra  hard  or  for 
longer  hours.  The  building  was  put  up  in  less  than 
three  months  and  at  a  lower  cost  than  had  been 
counted  on  by  those  who  figured  on  a  basis  of  six 
months  with  output-restricted  workmen.  The  whole 
of  England  is  suffering  more  or  less  from  the  error 


416  BUSINESS  PEINCIPLES 

of  limiting  the  output,  and  her  workingmen  are  re- 
ceiving lower  wages  in  consequence. 

There  are  many  other  features  of  trade  unionism 
as  it  is  now  organized  which  make  it  a  menace  to  the 
prosperity  of  workmen  and  employers  alike.  Con- 
sider; there  are  nearly  two  million  men  in  America 
paying  dues  in  labor  unions.  There  are  nearly  ten 
thousand  paid  business  agents  or  *' walking  dele- 
gates," whose  business  is  solely  to  look  after  the 
laborer's  interests  and  who  draw  support  from  the 
fact  that  labor  and  capital  is,  or  is  supposed  to  be,  at 
war.  The  establishment  of  peace  and  good  feeling 
between  employers  and  employes  would  rob  them  at 
once  of  the  pay  they  receive  from  the  unions  and  of 
the  power  they  wield  over  employers  and  men.  It 
is  to  their  interests  therefore  to  foment  grievances, 
to  make  discord,  to  stir  up  dissatisfaction,  for  this 
increases  their  power  and  seems  to  give  a  plausible 
reason  for  their  existence.  They  are  men  who  hope 
to  rise  by  loyalty  to  the  union,  and  they  have  every- 
thing to  lose  by  helping  along  the  interests  of  the 
employer.  The  members  of  a  union  too  are  inclined 
to  look  upon  the  dues  they  pay  as  an  investment 
which  should  bring  them  an  annual  return  in  higher 
wages  or  shorter  hours.  The  union  leaders  realize 
that  the  men  will  consider  their  money  wasted  unless 
some  effort  is  made  toward  constantly  increasing  de- 
mands, and  therefore  spend  a  large  part  of  their  time 
scaring  up  grievances,  whether  real  or  imaginary. 

This  widens  the  breach  between  the  two  sides  and 
fosters  antagonism.  The  result  is  that  the  interest 
of  the  union  and  the  interest  of  the  business  that  sup- 
plies work  is  so  sharply  defined  that  they  are  made 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     417 

into  two  hostile  masters,  both  of  which  no  man  can 
serve.  Members  of  a  union  hope  to  rise  by  helping 
along  the  union.  They  want  more  pay,  shorter  hours, 
easier  work,  regardless  of  the  interests  of  the  busi- 
ness that  provides  their  means  of  livelihood.  A  union 
never  meets  to  discuss  methods  and  means  to  better 
the  business.  Men  who  are  loyal  to  ''the  house," 
who  have  ambitions  about  bettering  the  business, 
who  hope  to  become  foremen,  superintendents,  and 
managers,  are  regarded  as  traitors  to  labor.  They 
keep  (mi  of  unions  because  they  are  not  wanted  there. 

This  sharp  line  of  demarcation  is  for  many  rea- 
sons opposed  to  the  bests  interests  of  employers,  of 
men,  and  of  the  nation  as  a  whole.  It  compels  a  man 
to  join  one  side  or  the  other,  to  fight  for  the  side 
he  joins  and  against  the  other.  If  he  attaches  him- 
self to  the  union,  especially  one  that  has  power  to 
dictate  the  "closed  shop,"  his  life  sentence  as  a 
laborer  is  written.  He  is  shut  off  from  the  friendship 
and  assistance  of  the  employer,  from  the  hope  of 
rising  to  a  higher  station  in  life  by  attaching  himself 
to  the  interest  of  the  business  that  employs  htm.  If 
the  employer  offers  him  twice  as  much  pay  for  con- 
scientious and  energetic  work  he  must  obey  the  rule 
of  the  union  which  says,  ''This  much  shall  you  do, 
this  much  shaU  you  earn,  and  no  more."  His  am- 
bition is  throttled,  his  endeavor  is  held  in  leash.  He 
cannot  work  when  he  wishes,  because  to  strike  is  not 
a  matter  of  choice;  he  must  throw  up  his  job  at  the 
dictate  of  the  walking  delegate,  who  has  nothing  to 
lose  and  everything  to  gain  by  stirring  up  discord. 

This  state  of  affairs  in  so  many  organized  trades 
presents  disadvantages  as  well  to  the  man  who  joins 


418  BUSINESS  PRINCIPLES 

the  side  of  the  employer.  He  is  thereby  cut  off  from 
the  friendship  of  his  fellow  men.  He  is  perhaps  per- 
secuted in  various  ways;  threats  and  intimidations 
are  employed  to  induce  him  to  join  the  union;  his 
wife  and  children  are  subjected  to  wordy  abuse.  If 
the  union  succeeds  in  enforcing  the  closed  shop  he 
is  thrown  out  of  a  job.  At  best,  he  feels  that  he  is 
helping  to  cut  himself  and  his  fellow  men  off  from 
the  advantages  that  combination  of  labor,  honestly 
and  justly  employed,  bring  to  the  working  class  as  a 
whole. 

There  is  no  need  to  point  out  how  employers  and 
the  nation  as  a  whole  suffer  from  a  condition  that 
presents  the  interests  of  labor  and  capital  as  being 
diametrically  opposed.  If  the  trades  unions  will  be 
satisfied  with  nothing  less  than  the  shortest  hours, 
the  largest  wages  and  the  smallest  output  that  the 
great  power  of  combination  enables  them  to  squeeze 
out  of  employers,  the  forces  of  productive  enterprise 
are  throttled  to  the  detriment  of  all.  What  becomes 
of  the  boasted  efficiency  of  the  American  workman 
if  his  output  is  limited  to  that  of  the  most  ignorant 
foreigner  who  may  chance  to  join  his  union*?  The 
workman  is  worthy  of  his  hire,  but  the  employer 
cannot  pay  more  than  a  man's  work  is  worth  to  him. 
Limitation  of  output  and  excessive  demands  for  high 
wages  cannot  help  but  make  an  industry  unprofitable 
and  limit  correspondingly  the  amount  of  capital  that 
is  invested  in  it,  that  is,  the  amount  of  labor  for  which 
it  creates  a  demand.  When  business  enterprise  is 
thus  paralyzed,  the  employers,  the  workmen,  and  the 
nation  as  a  whole  suffer  the  consequences. 

The  interests  of  employers  and  men  are  not  inimi- 


EELATIONS  OF  EMPLOYEE  AND  EMPLOYED     419 

cal,  and  should  not  be  considered  as  such.  We  have 
seen  that  the  theory  that  workmen  gain  what  em- 
ployers lose  is  a  fallacy.  The  workman  loses  when 
profits  decline  and  the  business  goes  to  pieces  just 
as  much  as  the  employer.  We  have  seen  too  that 
high  wages  are  not  inconsistent  with  large  profits, 
if  the  workman  is  not  foolishly  compelled  to  do  in- 
efficient work  by  trade  union  rules.  If  wages  were 
the  only  factor  in  making  up  cost  of  production, 
higher  wages  would  come  out  of  profits  alone,  and 
the  contest  between  labor  and  capital  would  be  sim- 
ply to  see  which  could  get  the  largest  share  of  the 
gross  proceeds.  But  with  any  given  selling  price, 
profits  depend  on  two  factors,  wages  cost  and  over- 
head cost,  and  the  latter  is  governed  largely  by  the 
rapidity  with  which  the  workman  turns  out  his  pro- 
duct. Limitation  of  output,  even  when  the  work  is 
paid  for  by  the  piece,  thus  cuts  the  employer  out  of 
the  ability  to  pay  high  wages.  A  large  daily  output 
is  to  the  interest  of  both  employer  and  employe,  if 
both  sides  will  be  intelligent  and  considerate  enough 
to  recognize  the  fact  and  to  pull  in  harmony  with 
each  other.  A  part  or  the  whole  of  the  direct  gains 
from  larger  output  per  day — according  to  the  amoimt 
of  assistance  furnished  by  the  employer  in  securing 
it — should  go  to  the  workman,  and  the  employer 
will  still  be  a  heavy  gainer  from  the  decreased  pro- 
portionate overhead  expense  or  burden  on  each  arti- 
cle. But  the  chief  reason  why  capital  and  labor  so 
often  pull  in  opposite  directions  seems  to  be  a  failure 
on  the  part  of  the  workmen  to  understand  the  broad 
principles  which  affect  their  best  interests  as  well 
as  those  of  their  employers.    Nor  can  it  be  denied 


420  BUSINESS  PEINCIPLES 

that  employers  as  a  whole  are  not  much  better  in- 
formed in  this  respect  than  their  workmen. 

There  is  no  reason  why  labor  unions  should  not 
be  so  managed  as  to  be  a  great  benefit  both  to  em- 
ployers and  men.  There  are  certain  points  at  which 
the  interests  of  the  two  classes  must  be  carefully 
guarded  by  each.  The  employers,  generally  speak- 
ing, do  not  wish  to  pay  any  higher  wages  than  are 
necessary  to  get  the  work  done,  and  as  we  have  seen, 
combination  is  often  the  only  means  of  protecting 
the  laborer's  interests  in  this  respect.  Some  em- 
ployers too  are  not  broadminded  enough  to  see  that 
sanitary,  safe  and  comfortable  conditions  of  work 
are  an  advantage  to  all  concerned.  In  respect  to  all 
these  points  the  labor  union  exercises  a  legitimate 
function  in  securing  fair  play  and  justice,  which  the 
workman  would  be  helpless  to  enforce  single-handed. 
The  union  has  other  advantages;  it  brings  men  to- 
gether, and  that  which  cements  friendship  and  makes 
for  brotherhood  is  well. 

But  the  functions  of  the  labor  union  should  be 
extended  and  its  usefulness  vastly  increased  by  the 
consideration  of  those  points  in  which  the  interests 
of  employers  and  men  are  identical.  The  unions 
should  be  open  to  recognition  of  the  fact  that  what- 
ever makes  for  greater  efficiency  in  the  business, 
whatever  makes  for  lower  costs  of  production,  tends 
in  the  long  run  to  raise  men's  wages  and  better  their 
conditions  as  well  as  to  increase  the  profits  of  the 
concern.  Rules  that  lower  the  productive  capacity 
of  each  man,  that  compel  the  emplojnnent  of  two 
men  to  do  work  that  should  be  done  by  one,  lowers 
correspondingly  the  value  of  each  man's  work  and 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     421 

puts  a  narrower  limit  on  the  amount  of  wages  the 
employer  can  afford  to  pay.  Moreover,  by  reducing 
profits  it  drives  the  business  toward  the  rocks  of 
bankruptcy,  withdraws  capital  from  the  industry, 
and  thus  steadily  decreases  the  demand  for  labor. 
Wise,  conscientious,  and  intelligent  union  leaders 
should  educate  the  other  members  in  the  true  eco- 
nomic relations  between  labor  and  capital  and  compel 
them  to  recognize  that  there  are  many  features  in 
which  their  interests  and  that  of  their  employers 
run  together.  When  this  shall  have  been  done,  em- 
ployers and  men  will  cooperate  in  increasing  indus- 
trial efficiency  and  adding  to  the  sum  total  of  the 
nation  ^s  wealth.  The  unions  will  come  together  to 
consider  methods  and  means  of  bettering  the  busi- 
ness as  well  as  to  discuss  grievances;  they  will  recog- 
nize the  broad  principle  that  the  greater  the  daily 
output  of  the  average  individual  in  a  trade  the 
greater  will  be  the  average  wages  in  the  trade,  and 
that  in  the  long  run  turning  out  a  large  amount  each 
day  means  higher  wages,  steadier  employment,  an 
increased  demand  for  labor,  and  greater  prosperity 
for  all. 

The  more  immediate  and  practical  problem  that 
confronts  us  concerns  the  best  methods  of  treating 
with  trades  unions  as  they  are  now  organized,  and 
the  relations  that  should  obtain  between  employers 
and  men.  No  general  answer  can  be  given  to  this 
perplexing  question,  because  conditions  differ  in  al- 
most every  particular  case. 

Wherever  it  can  be  avoided,  we  may  say  that  it 
is  a  vicious  practice  to  herd  the  men  together  in 
classes,  pay  all  of  each  class  the  same  wage,  and  offer 


422  BUSINESS  PEINCIPLES 

none  of  the  men  any  inducements  to  work  harder  or 
do  better  than  the  average.  Where  this  is  done  the 
laborers  have  nothing  to  gain  by  attaching  them- 
selves to  the  interest  of  the  employer.  The  only 
thing  they  can  do  is  to  combine  and  if  necessary 
strike  for  the  highest  wages  they  can  obtain.  That 
this  state  of  affairs  is  far  from  satisfactory  to  either 
employers  or  men  is  obvious,  but  there  seem  to  be 
many  cases  in  which  this  herding  together  of  men 
in  classes  cannot  be  well  avoided.  Particularly  is 
this  true  where  there  is  no  means  of  measuring  the 
amount  or  quality  of  work  done  by  each  man.  Street- 
car conductors,  for  example,  cannot  very  well  be 
paid  in  proportion  to  the  amount  of  their  output  nor 
according  to  the  individual  efficiency  of  each  man. 
The  incompetent,  of  course,  can  be  discharged,  but 
the  work  is  of  such  a  nature  that  any  man  of  ordinary 
intelligence  can  perform  it.  The  only  stimulus  that 
can  be  offered  in  such  a  case  is  to  hold  out  hopes  of 
higher  pay,  promotion  and  retirement  with  a  pension 
as  rewards  for  long  and  faithful  service. 

It  is  in  cases  like  this  that  the  trade  union  as  it 
now  exists  finds  its  greatest  justification  and  the 
application  of  union  principles  offer  the  least  to  criti- 
cise. When  difficulties  as  to  rates  of  pay  or  hours 
arise  the  safest  and  sanest  method  of  settling  dis- 
putes is  by  means  of  the  trade  agreement.  Repre- 
sentatives of  employers  and  men  get  together  and 
endeavor  to  come  to  some  agreement  that  will,  if 
possible,  secure  justice  on  both  sides. 

We  have  seen  already  that  if  there  is  any  possible 
method  measuring  or  keeping  track  of  the  amount 
of  work  that  a  man  is  doing,  more  satisfactory  results 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     423 

will  be  secured.  There  are  many  kinds  of  work  now 
being  done  by  the  day  that  can  be  put  on  piece 
wages,  or  that  can  at  least  be  inspected  and  records 
kept  of  the  amount  and  quality  of  work  done.  Simi- 
larly there  are  many  trades  where  the  wages  and 
conditions  of  employment  of  whole  classes  of  men 
are  regulated  by  conference  and  agreement  between 
the  leaders  of  unions  and  manufacturers,  yet  where 
the  material  interests  of  both  parties  would  be  vastly 
improved  by  a  different  method,  one  that  would  pay 
each  man  in  proportion  to  his  individual  worth. 
Where  all  workmen  in  a  class  are  paid  the  same 
wages,  each  is  anxious  not  to  do  any  more  than  his 
neighbor;  they  are  given  every  incentive  to  go  as  slow 
as  the  poorest  man  in  the  lot.  Stimulate  each  work- 
man's ambition  by  paying  him  in  proportion  to  the 
amount  of  his  output,  without  limiting  him  to  the 
rate  of  work  or  the  pay  of  the  average  of  his  class — 
protect  him  against  injustice  in  the  lowering  of  rates 
or  of  pay,  and  you  have  a  method  that  will  insure 
high  wages  to  the  men,  high  profits  to  the  employer, 
and  justice  to  both. 

But,  says  the  perplexed  employer,  my  men  belong 
to  a  imion  that  strictly  limits  their  output  to  so  much 
a  day;  that  regulates  all  the  conditions  of  employment 
in  such  a  way  as  to  reduce  the  output  and  make  me 
employ  more  men;  that  insists  that  none  but  union 
men  shall  be  employed.  Conditions  as  extreme  as 
this  are  not  usual,  but  nevertheless  are  occasionally 
met  with.  There  are  indeed  situations  where  the 
union  has  so  tied  the  employer  up  that  he  can  but 
fold  his  hands.  Yet  it  is  seldom  that  all  the  employes 
of  a  firm  are  working  in  a  closed  shop,  and  many  an 


424  BUSINESS  PBINCIPLES 

employer  has  made  an  opening  wedge  by  introducing 
new  and  improved  methods  in  the  parts  of  his  estab- 
lishment where  the  men  were  more  progressive,  more 
open  to  conviction. 

Even  where  the  men  are  most  stubborn,  nothing 
is  lost  by  offering  one  of  those  methods  of  increasing 
their  pay  which  they  can  take  or  leave  as  they  choose. 
It  is  no  crime  to  offer  the  premium  plan  or  the  time 
guarantee  plan  even  in  a  closed  shop;  and  the  most 
obstinate  will  find  it  hard  to  resist  the  opportunity  to 
double  their  wages  when  assured  that  the  increase 
will  be  permanent.  When  the  men  in  the  closed 
shop  see  those  in  another  department  earning  100 
per  cent  more  by  accepting  the  new  rates,  their  ad- 
herence to  a  vicious  and  costly  rule  will  sooner  or 
later  begin  to  weaken.  If  in  addition  a  man  can  be 
introduced  among  them  who  is  earning  steadily  the 
higher  wages,  the  power  of  example  will  prove  too 
strong  to  resist.  It  is  best  not  to  make  the  question 
of  membership  or  non-membership  in  the  union  an 
issue.  Let  them  belong  to  the  union  or  not,  as  they 
choose;  if  their  union  membership  will  not  allow  them 
to  earn  more  than  $2  a  day,  and  they  see  that  it  will 
cost  them  $2  additional,  it  is  for  them  to  decide 
whether  the  privilege  is  worth  that  to  them.  In  the 
establishments  where  the  new  art  of  management 
has  been  applied  with  most  success,  the  men  are 
almost  never  compelled  to  leave  the  union.  Of  course 
the  time  may  and  usually  does  come  when  the  union 
rules  and  restrictions  must  be  relaxed  or  the  man 
who  sticks  to  them  will  become  but  a  hopeless  in- 
competent in  a  shop  of  busy  and  efficient  men.  But 
if  the  employer  voluntarily  offers  more  than  the 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED    425 

Tinion  can  promise,  the  reason  for  its  existence, 
except  as  a  social  factor,  has  passed. 

Workmen  who  are  paid  in  proportion  to  their  in- 
dividual worth,  who  are  earning  more  than  the  aver- 
age of  their  class,  who  are  treated  squarely  and  be- 
trayed by  no  tricks  or  subterfuges, — ^these  men  are 
happy  and  contented,  and  have  no  use  for  a  union 
if  it  is  going  to  deprive  them  of  their  high  wages  and 
general  well-being.  The  trade  agreement,  necessary 
as  it  sometimes  is  to  avoid  industrial  warfare,  is  too 
much  of  a  cut  and  dried  affair  to  give  the  workmen 
any  personal  interest  in  their  work.  But  when  each 
man's  personal  ambition  is  stimulated  by  a  proper 
system  of  pay  and  proper  treatment  by  the  employer, 
then  are  called  into  play  all  the  factors  that  make 
for  efficiency  and  progress. 

It  may  be  objected  that  the  system  of  basing  pay 
rates  and  wages  on  the  scientific  determination  of 
standard  times  for  work  puts  entirely  into  the  hands 
of  the  employer  the  arbitrary  fixation  of  many  points 
that  should  be  decided  upon  only  after  a  conference 
between  both  sides.  This  objection  is  not  very  well 
sustained  by  the  facts  in  most  cases.  The  amount  of 
work  which  a  man  should  do  in  a  day,  what  consti- 
tutes proper  pay  for  his  work,  and  the  maximum 
number  of  hours  per  day  a  man  should  work — ^all 
these,  as  we  have  seen,  may  be  scientifically  deter- 
mined. If  the  employer  carries  on  the  experiments 
with  care  and  accuracy,  he  has  then  certain  data  on 
which  to  proceed.  But  there  is  no  arbitrary  fixation 
in  most  cases.  The  employer  simply  offers  to  pay  a 
certain  percentage  above  the  average  in  return  for 
a  certain  amount  of  work  more  than  the  average. 


426  BUSINESS  PRINCIPLES 

If  the  amount  of  pay  offered  is  not  enough,  the  men 
will  not  accept  it;  if  the  amount  of  work  demanded 
is  excessive,  it  will  have  to  be  changed.  The  time 
may  some  time  come  when  all  workmen  will  be  ex- 
pected to  turn  out  the  maximum  output;  but  when 
that  time  comes  scientific  time  study  will  have  estab- 
lished standards  that  can  be  accepted  as  fair  by  both 
employer  and  men. 

Proper  treatment  by  the  employer  implies  some- 
thing more  than  strict  honesty  and  square  deahng  in 
matters  of  pay  and  hours.  There  is  no  denying  that 
one  of  the  most  serious  objections  that  are  met  with 
in  applying  scientific  methods  of  management  arises 
from  the  fact  that  the  determination  of  standard  con- 
ditions of  production  takes  all  initiative  out  of  the 
workman's  hands.  He  is  made  to  use  exactly  such 
and  such  tools,  in  exactly  such  a  way.  His  every 
movement  is  mapped  out  for  him  by  instruction  cards 
and  closely  inspected  by  speed  and  job  bosses. 
Though  this  system  makes  for  vastly  more  efficient 
conditions  of  production  the  workman  feels  that  he 
is  being  treated  as  an  automatic  machine  rather  than 
as  a  thinking,  feeling  human  being.  If  he  can  be 
made  to  appreciate  that  these  measures  are  taken  in 
his  own  behalf,  in  order  to  enable  him  to  better  his 
condition  and  earn  higher  wages,  part  of  the  sting  is 
removed.  But  it  can  easily  be  seen  that  there  is 
extra  need  of  caution  here  lest  the  workmen  get 
entirely  out  of  sympathy  with  the  management  and 
their  work  and  become  convinced  that  their  indi- 
vidual rights  and  personal  liberty  may  suffer  en- 
croachment. A  special  effort  should  be  made  to  treat 
the  employes  as  men;  to  give  every  consideration  to 


RELATIONS  OF  EMPLOYER  AND  EMPLOYED    437 

them;  and  even  their  prejudices  should  be  treated 
respectfully  in  dealing  with  them. 

Workmen  will  do  more  for  the  sake  of  friendship 
and  when  they  are  sure  of  sympathy  and  help  than 
for  money  alone.  We  remember  that  one  of  the  great 
advantages  of  the  contract  system  lies  in  the  satis- 
factory personal  relations  that  exist  between  em- 
ployers and  men.  If  their  foreman  is  a  man  who 
encoiu-ages  them  to  tell  him  their  troubles ;  who  will 
be  glad  to  give  them  his  advice  and  even  more  ma- 
terial assistance;  who  likes  to  talk  over  things  with 
them,  both  matters  relating  to  their  work  and  more 
personal  affairs;  who  is  always  sympathetic  and 
friendly,  they  will  be  glad,  if  necessary,  to  **work 
their  heads  off "  to  please  him. 

Above  all  is  it  necessary  that  men  should  be  met 
and  talked  to  on  their  own  level  by  those  above  them. 
The  employer  who  goes  through  the  works  with  a 
superior,  "touch  me  not"  manner;  who  has  never 
been  known  to  sit  down  at  a  bench  or  take  a  machine 
in  hand;  who  speaks  to  the  men  in  a  patronizing  way 
or  not  at  all,  has  no  chance  at  all  of  ascertaining  their 
real  thoughts  or  feelings,  or  of  securing  their  hearty 
support  to  the  interests  of  the  firm.  Men  who  are 
encouraged  to  talk  to  their  employers  and  to  tell  of 
their  troubles  will  do  far  less  grumbling  and  harping 
among  themselves  over  grievances  that  grow  in  the 
telling.  Employes  would  much  rather  be  criticised 
by  their  superiors,  if  the  ** calling  down"  has  a  touch 
of  the  milk  of  human  kindness  in  it,  than  to  be  passed 
by  with  no  more  notice  than  if  they  were  part  of  the 
machinery. 

Every  man  will  have  troubles  and  trials  which, 


428  BUSINESS  PKINCIPLES 

if  allowed  to  pile  up  day  after  day,  become  like 
pent  up  steam  in  a  boiler.  Grievances,  talked  over 
with  fellow  workmen  who  have  similar  causes  of 
dissatisfaction  and  who  can  see  things  only  from 
the  same  point  of  view,  simply  add  to  the  flames  that 
increase  the  pressure.  The  opportunity  given  to 
workmen  to  air  their  views  freely  and  to  have  it  out 
with  their  employers  acts  as  a  safety  valve;  and  the 
employer  who  is  a  reasonable  man,  who  listens  with 
respect  and  treats  with  consideration  what  the  men 
have  to  say,  will  secure  the  double  service  of  heart 
and  hand. 

Closely  related  to  this  question  of  personal  rela- 
tions between  employers  and  men  lies  the  broad  field 
of  endeavor  which  we  may  call  for  want  of  a  more 
satisfactory  term,  industrial  betterment.  Space  will 
not  permit  us  more  than  to  touch  upon  a  few  phases 
of  this  subject.  Plans  for  social  betterment  usually 
have  one  or  more  of  the  following  objects  in  view: 

1.  The  securing  of  more  pleasant  relations  be- 
tween employer  and  employe. 

2.  Making  employes  more  efficient  by  looking 
after  their  health,  housing,  protection  and  education. 

3.  Making  conditions  of  work  so  pleasant  that 
workmen  of  the  highest  grade  will  be  drawn  to  the 
establishment  and  induced  to  stay. 

4.  Charity  or  philanthropy. 

5.  Advertising. 

It  is  hard  to  tell  in  any  particular  case  just  how 
far  plans  for  industrial  betterment  will  pay.  Like 
everything  else,  there  is  a  diminishing  return  after  a 
certain  point  has  been  reached.  Recent  experiences 
have  proved  that  there  is  also  danger  from  too  great 


EELATIONS  OF  EMPLOYEK  AND  EMPLOYED    429 

paternalism;  not  only  do  the  men  resent  being  cod- 
dled, petted  and  improved,  but  if  given  too  much 
voice  in  the  arrangements  begin  to  think  themselves 
sole  managers  of  the  concern  and  become  more  and 
more  excessive  in  their  demands. 

Still  another  objection  to  too  great  outlay  for 
social  betterment  plans  is  of  the  same  nature  as  the 
objection  to  paying  the  same  wages  to  large  classes 
of  men.  The  highly  efficient  workman  gets  no  more 
out  of  free  lounging  rooms,  lectures  and  so  forth  than 
the  incapable  and  lazy.  Money  spent  on  clubs, 
libraries  and  lectures  really  means  sharing  the  profits 
earned  by  the  more  efficient  with  all  the  rest.  Often- 
times better  results  and  more  general  satisfaction 
would  have  been  gained  if  money  spent  in  semi- 
philanthropic  schemes  had  been  devoted  to  paying 
premiums  to  the  quickest  and  most  capable  work- 
men. It  may  be  accepted  as  a  rule  that  after  health 
and  comfort  and  a  reasonable  degree  of  recreation 
have  been  provided  for,  workmen  prefer  to  spend 
their  money  in  their  own  way. 

The  plans  described  below  are  divided  for  con- 
venience into  four  classes.  Those  which  may  be 
profitably  adopted  in  any  particular  case  will  depend 
on  conditions. 

1.  Well  ventilated,  well  lighted  and  heated  fac- 
tories will  always  pay.  Some  plants  will  need  a  fire, 
not  because  they  are  chilly,  but  to  relieve  the  minds 
of  employes.  It  may  be  taken  for  granted  that  the 
best  workmen  will  not  consider  for  a  moment  living 
out  in  a  place  that  is  unhealthy,  unsafe  or  uncom- 
fortable. In  addition,  many  employers  find  it  profit- 
able to  go  dieep'er  into  the  matter  of  hea:lth.    They 


430  BUSINESS  PRINCIPLES 

provide  lockers  fitted  out  with  changes  of  clothing, 
dry  shoes  and  stockings  and  so  on,  so  that  the  em- 
ployes wiU  not  catch  cold  or  have  their  minds  pre- 
occupied with  bodily  discomfort.  Some  large  estab- 
lishments provide  a  physician  in  attendance  for  the 
men  and  a  nurse  for  the  girls.  The  value  of  this 
method  depends  entirely  on  conditions.  There  is 
danger,  for  example,  that  men  will  knock  off  work  on 
the  slightest  excuse  to  consult  the  doctor  about  some 
imaginary  ailment  and  secure  his  permission  to  go 
home  by  exaggereating  symptoms.  To  provide 
against  this  a  bonus  of  from  2  to  5  per  cent  of  wages 
is  often  given  for  good  attendance. 

On  the  other  hand,  there  are  some  classes  of  la- 
boring men  and  women  who  have  the  scantiest  con- 
ception imaginable  of  the  importance  of  taking 
thought  for  their  physical  well  being.  To  do  for  them 
what  they  will  not  do  for  themselves  will  often  repay 
many  times  the  expense,  in  securing  regularity  of 
operation  in  the  various  departments  of  the  estab- 
lishment. Moreover,  a  nurse  and  physician  may 
prove  invaluable  in  teaching  the  employes  to  live 
sane,  temperate,  healthful  lives.  The  first  law  of 
efficiency  is  health.  The  man  or  woman  who  comes 
to  work  in  the  morning  exhausted  from  the  excesses 
of  the  night  before  is  worth  little  or  nothing  to  the 
firm. 

2.  It  is  sometimes  advantageous  to  care  for  th^ 
employes*  health  and  housing  conditions  outside  of 
working  hours.  Some  firms  run  boarding  houses,  to 
make  sure  of  sanitary  conditions  in  the  home,  to  pre- 
vent overcharges,  and  to  furnish  a  labor  nucleus  in 
the  locality.    In  city  districts  that  are  infested  with 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     431 

saloons  and  low  drinking  places,  it  may  be  worth 
while  to  provide  attractive  lounging  and  rest-rooms 
to  prevent  men  from  coming  back  to  their  after- 
noon's work  half  stupified  from  the  noon-time  round 
of  drinks.  The  same  motives  may  prompt  the  estab- 
lishment of  lunch-rooms  where  cheap  but  wholesome 
food  is  served.  The  directors  of  the  Chicago  Tele- 
phone Company  not  long  ago  provided  lunch-rooms 
for  the  operators  in  all  the  exchanges  in  the  city.  As 
one  of  the  officials  expressed  himself,  when  asked 
the  reason  for  the  change:  *'We  had  to  do  it.  We 
have  noticed  for  some  time  that  the  girls  were  cross 
and  irritable  in  the  afternoon;  and  we  found  upon 
investigation  that  most  of  them  lunched  on  a  com- 
bination of  sour  pickle  and  an  ice  cream  soda." 

3.  Plans  providing  for  the  intellectual  improve- 
ment of  employes  take  many  forms.  Lecture  halls 
and  free  lectures,  libraries,  reading  rooms,  courses  of 
study  at  night,  all  these  have  been  tried  with  varying 
degrees  of  success.  Viewed  from  the  standpoint  of 
dollars  and  cents  the  objects  of  intellectual  improve- 
ment plans  are  two :  The  first  of  these  is  to  give  the 
employes  an  interest  in  something  besides  dances, 
pool-rooms  and  drinking  bouts,  which  impair  their 
health  and  sap  their  ambition  for  better  things.  The 
second  is  to  increase  their  efficiency  by  systematic 
training  in  subjects  that  will  be  of  assistance  in  the 
business  in  which  they  are  employed.  The  expense 
of  plans  of  this  nature  is  often  considerable,  yet  they 
often  bring  surprisingly  large  results.  A  department 
store  in  one  of  our  large  cities  was  embarassed  for  a 
number  of  years  because  of  the  costly  blunders  con- 
stantly made  by  cash  and  sales  girls,  due  to  a  lack  of 


433  BUSINESS  PRINCIPLES 

knowledge  of  the  rudiments  of  arithmetic.  A  night 
school  that  was  established  failed  because  the  girls 
would  not  attend.  Finally  it  was  decided  to  run  the 
school  during  working  hours,  a  plan  which  scored  an 
immediate  and  tremendous  success.  The  girls  were 
glad  to  drop  their  routine  duties  a  couple  of  hours 
every  week,  and  as  classes  were  not  held  during  rush 
hours  they  were  easily  spared.  The  improvement  in 
the  accuracy  with  which  bills  and  orders  were  made 
out  effected  an  immense  saving  in  time,  trouble,  em- 
barrassment and  expense. 

Many  concerns  that  have  not  at  their  disposal 
facilities  for  starting  schools  of  their  own  encourage 
their  employes  to  take  up  courses  outside  the  estab- 
lishment. A  business  house  that  employs  a  few 
bookkeepers  and  accountants,  though  it  would  gain 
considerably  from  greater  efficiency  in  these  em- 
ployes, would  experience  great  difficulty  in  providing 
adequate  instruction  in  auditing  and  accounting. 
Good  teachers  of  these  subjects  are  hard  to  find,  their 
services  are  in  great  demand,  and  they  can  command 
good  salaries.  These  and  many  other  business  sub- 
jects are  best  taught  in  a  school  regularly  organized 
for  such  a  purpose.  Establishments  located  near 
schools  and  universities  that  provide  systematic 
training  in  business  subjects  are  becoming  keenly 
alive  to  the  importance  of  inducing  their  employes  to 
take  up  courses  of  study  that  will  make  for  efficiency 
and  progress;  many  of  them  are  offering  to  pay  part 
or  all  of  the  tuition  of  those  who  wish  to  avail  them- 
selves of  the  opportunity.  The  spread  of  correspond- 
ence and  extension  school  courses  is  now  offering  the 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     433 

same  opportunity  to  those  remote  from  institutions 
of  learning. 

Courses  of  study  taken  up  outside  an  establish- 
ment derive  additional  merit  from  the  fact  that  they 
tend  to  broaden  an  employe's  intellectual  view  and 
awaken  interest  in  a  wide  range  of  studies  that  a 
single  firm  could  not  introduce. 

4.  Industrial  betterment  plans  that  have  for 
their  object  the  physical  recreation  of  employes  are 
of  less  apparent  value  and  bring  at  best  a  more  re- 
mote return.  Gymnasiums,  baseball  and  athletic 
grounds  may  indeed  be  worth  while  in  regions  where 
no  means  of  physical  recreation  are  to  be  had.  They 
serve  to  break  into  the  bleak  routine  of  daily  toil  that 
dulls  so  many  lives,  and  to  promote  a  kindly  feeling 
among  the  men  for  their  employers.  Most  com- 
munities, however,  now  recognize  the  value  of  parks 
and  playgrounds,  and  provide  facilities  of  this  nature 
out  of  public  lands  and  funds. 

In  general  it  may  be  said  that  semi-pliilanthropic 
plans  for  industrial  betterment  should  not  be  made 
subordinate  to  the  solution  of  the  greater  problems 
of  work  and  wages.  They  should  be  regarded  as 
means  of  attracting  and  holding  first-class  workmen, 
but  they  will  prove  of  minor  importance  until  it  has 
first  been  determined  how  much  work  a  first-class 
man  can  do  and  what  conditions  of  work  and  system 
of  pay  will  avail  to  secure  the  maximum  output.  In 
fact  the  high  wages  which  it  is  possible  to  pay  after 
a  scientific  investigation  of  the  problem  of  work  and 
wages  will  often  of  itself  serre  to  attract  workmen 
of  the  highest  grade. 

It  is  to  be  understood  that  where  betterment 


434  BUSINESS  PRINCIPLES 

plans  have  been  entered  into  from  philanthropic  mo- 
tives, or  for  purposes  of  advertising,  their  application 
will  be  governed  by  rules  different  from  those  con- 
sidered. As  a  discussion  of  these  matters  would 
open  up  a  field  too  wide  for  us  to  cover,  we  must  be 
content  with  this  passing  observation. 

The  subject  of  the  relations  between  employer 
and  men  calls  for  some  consideration  of  methods  of 
dealing  with  refractory  and  disobedient  employes. 
Unfortunately  most  firms  make  no  systematic  at- 
tempt to  discipline  the  men;  beyond  ** docking 
wages"  for  tardiness,  ''talking  to''  those  who  are 
bad,  and  discharging  those  who  are  incorrigible,  no 
attempt  is  made  to  enforce  rules  and  regulations. 
Yet  it  is  important  that  the  management  adopt  and 
enforce  a  consistent,  carefully  considered  system  of 
discipline,  one  that  will  apply  with  justice  to  all  the 
men. 

Most  employes  in  a  well-managed  shop  are  anx- 
ious to  do  their  duty,  and  fail  rather  through  igno- 
rance than  through  a  spirit  of  insubordination. 
These  men,  in  case  of  error,  should  be  talked  to  in  a 
friendly  way  until  they  understand  what  is  required 
of  them.  Only  when  the  employer  is  convinced  that 
infringements  of  the  rules  are  made  wilfully  should 
severer  measures  be  employed.  There  are  some  men 
on  whom  talk  will  have  no  effect  unless  they  are  con- 
vinced that  some  definite  punishment  or  penalty  will 
follow.  The  employer  can,  of  com'se,  threaten  dis- 
charge ;  and  this  is  effective  as  a  last  resort. 

But  there  are  many  small  offenses  that  do  not 
merit  such  a  drastic  penalty.  The  employer  may 
not  be  in  a  position  to  discharge  a  man  without  con- 


EELATIONS  OF  EMPLOYER  AND  EMPLOYED     435 

siderable  inconvenience  and  loss  to  himself.  If  the 
disobedient  employe  knows  this,  he  may  take  pleas- 
ure in  sailing  as  close  to  the  wind  as  he  dares.  It  is 
desirable  therefore  that  there  should  be  several  steps 
between  talking  to  a  man  and  discharging  him, 
graded  in  severity  according  to  the  nature  of  the 
offense. 

The  disobedient  employe's  wages  may  be  lowered 
or  he  may  be  suspended  for  a  shorter  or  longer  time. 
These  expedients  are  sometimes  effective,  but  they 
are  often  impossible  because  if  universally  applied 
they  will  certainly  cause  some  employes  to  quit  alto- 
gether. Laying  off  a  man  will  often  give  the  em- 
ployer as  much  inconvenience  as  the  man,  because 
of  machinery  lying  idle  or  work  delayed.  More  prac- 
tical is  the  plan  of  giving  a  bad  mark  for  each  time 
a  rule  is  broken  and  keeping  a  record  of  these  marks. 
If  the  employes  know  that  these  marks  will  be  taken 
into  account  when  questions  of  promotion  or  in- 
crease of  pay  come  up,  or  when  a  man  is  asking  for 
a  recommendation,  they  will  naturally  endeavor  to 
have  as  clean  a  slate  as  possible. 

There  are  some  men  whom  the  bad  mark  system 
will  only  encourage  to  collect  as  many  black  spots  as 
they  can  without  actually  being  discharged,  but  such 
instances  are  rare.  This  system  may  be  made  more 
intensive  by  attaching  a  distinct  money  loss  to  each 
error.  The  merit  of  this  is  that  the  amount  of  the 
fine  may  be  graduated  to  the  severity  of  the  offense. 
But  there  are  several  dangers  to  be  avoided  in  adopt- 
ing a  fining  system.  First,  it  should  not  be  plunged 
into  too  hastily.  It  may  be  introduced  gradually, 
covering  in  the  beginning  only  the  most  flagrant 


436  BUSINESS  PEINCIPLES 

offenses,  and  later  extending  to  all  infractions  large 
and  small.  Second,  it  must  be  applied  impartially 
and  with  good  judgment.  It  is  a  good  plan  to  fine 
foremen,  managers  and  even  the  employer  himself 
for  infringement  of  rules.  Lastly,  the  money  col- 
lected from  fines  must  be  returned  in  some  form  or 
other  to  the  men,  otherwise  it  will  be  impossible  to 
make  them  believe  that  the  fines  are  not  imposed  for 
the  purpose  of  enabling  the  company  to  make  money. 
If  the  fines  are  turned  in,  for  example,  to  an  accident 
or  sickness  insurance  fund  for  the  benefit  of  the 
workmen,  they  recognize  it  at  once  as  purely  a  system 
of  discipline.  In  many  plants  the  workmen  are  or- 
ganized on  a  self-governing  basis  and  discipline 
themselves. 

It  is  to  be  regretted  that  space  will  not  permit  of 
a  more  extended  discussion  of  many  of  the  points 
that  have  been  crowded  into  this  one  brief  chapter. 
Experiments  are  now  going  forward  in  thousands  of 
establishments  in  this  country,  each  of  which  pre- 
sents some  new  phase  of  the  relations  between  capital 
and  labor,  each  of  which  is  testing  some  new  prin- 
ciple bearing  on  the  relative  positions  of  employer 
and  employed.  While  our  literature  is  replete  with 
works  on  the  general  problems  of  labor,  very  little 
has  been  written  on  those  problems  of  management 
which  concern  the  personal  relations  between  em- 
ployer and  man.  Perhaps  some  ambitious  investi- 
gator will  some  day  delve  into  this  broad  field  and 
bring  to  light  many  things  which  are  now  hidden 
from  view. 


CHAPTER  XVII. 

SALESMANSHIP  AND  THE  SELLING 
DEPARTMENT. 

The  work  of  the  salesman,  like  that  of  any  other 
member  of  an  establishment's  force,  may  be  looked 
at  from  two  viewpoints,  that  of  the  employer  and 
that  of  the  man.  From  the  standpoint  of  the  man, 
efficiency  in  his  work,  whether  he  be  salesman,  ma- 
chinist or  day  laborer,  has  a  most  important  bearing 
on  his  earning  capacity.  The  first-class  man  always 
commands  the  highest  wages.  This  is  perhaps  more 
true  of  the  salesman  than  of  any  other  wage  earner, 
for  efficiency  receives  readier  recognition  in  this  line 
of  work  than  in  any  other.  The  machinist  is  often 
hampered  in  his  desire  to  earn  high  wages  by  union 
rules  that  compel  him  to  restrict  his  output  or  by 
faulty  systems  of  paying  wages,  that  make  it  against 
his  interest  to  do  more  than  a  third-rate  man.  The 
salesman  is  never  so  hampered;  no  union  or  intimi- 
dation on  the  part  of  his  fellow-men  can  compel  him 
to  cut  down  his  sales  record,  nor  need  he  fear  a  cut 
in  wages  if  he  does  too  weU.  The  machinist  or  shop- 
man is  often  shut  out  from  higher  earnings  by  the 
trade  agreement  providing  for  uniform  wages  for 
all  men  of  his  class;  each  salesman  is  in  a  class  by 
himself,  as  no  ** union  scale'*  ever  holds  him  back 

437 


438  BUSINESS  PEINCIPLES 

from  demanding  and  receiving  as  much  as  he  is  worth 
to  his  employer.  There  is  no  line  of  work  in  which 
wages  of  men  in  the  same  class  vary  more  widely. 
In  the  grocery  trade,  for  example,  salesmen  receive 
anywhere  from  a  few  dollars  a  week  to  many  thou- 
sands a  year,  strictly  in  proportion  to  their  individual 
merits.  For  these  and  many  other  reasons  a  high 
degree  of  skill  is  more  important  to  the  man  who  sells 
than  to  him  who  produces. 

The  importance  to  the  employer  of  having  first- 
class  men  to  work  for  him  has  frequently  been 
pointed  out  in  the  foregoing  pages.  The  man  who 
can  turn  out  twice  as  much  as  the  average  is  worth 
much  more  to  the  employer  than  twive  the  average 
wage.  Moreover,  we  have  seen  what  great  possi- 
bilities in  enlargement  of  output  and  reduction  of 
producing  costs  lie  in  the  scientific  determination 
of  standard  conditions  of  work,  the  best  shapes  and 
metals  for  tools,  and  the  best  methods  of  performing 
operations.  If  this  is  true  of  the  producing  end  of 
a  business,  how  much  more  true  is  it  of  the  selling 
end!  For  profits  depend,  in  the  last  analysis,  on  the 
production  of  orders  more  than  on  anything  else. 
You  may  have  the  most  efficient  management  in  the 
world,  you  may  have  the  cost  of  production  reduced 
to  a  scientific  minimum,  but  unless  these  serve  as  a 
means  to  the  quick  and  efficient  marketing  of  the 
product,  all  that  you  have  accomplished  goes  for 
naught.  It  is  useless  to  increase  your  output  at  the 
same  cost  for  labor  and  capital  unless  you  have  a 
sales  organization  that  can  place  your  goods  upon 
the  market  at  profitable  prices  and  without  loss  of 
time. 


SALESMANSHir  439 

The  interest  of  the  salesman  and  of  his  employer 
IS  therefore  at  practically  all  points  the  same.  The 
capable  and  efficient  salesman  is  a  boon  both  to  him- 
self and  to  his  employer.  He  can  earn  wages  as  high 
as  his  abilities  deserve,  and  the  employer  is  the  firat 
to  recognize  his  worth  and  give  him  his  reward.  What 
the  salesman  gains  in  knowledge  and  skill  and  ability 
to  secure  orders  means  larger  profits  in  the  balance 
sheet  of  the  firm.  The  wise  employer  will  therefore 
take  special  pains  in  the  training  of  his  salesmen. 
Important  as  is  the  training  of  the  workmen  in  the 
most  scientific  methods  of  doing  their  work,  the  de- 
velopment of  an  efficient  selling  force  and  training 
of  the  men  is  even  more  necessary. 

But  while  the  interest  of  both  parties  is  the  same, 
the  problem  before  the  employer  is  a  broader  and 
deeper  one  than  that  which  presents  itself  to  the 
salesman.  He  has  to  consider  not  only  the  efficiency 
of  the  individual  members  of  his  sales  force,  but  sev- 
eral other  factors  besides.  He  must  consider  the 
proper  organization  of  his  selling  department  and  the 
training  of  managers  as  well  as  men.  He  must  devise 
a  system  whereby  he  can  ascertain  if  each  man  is 
satisfactorily  covering  his  territory,  getting  his  full 
quota  of  business,  keeping  old  customers  and  secur- 
ing new  ones.  The  employer  must  see  to  it  that  the 
sales  manager  is  employing  the  proper  grade  of 
salesmen,  is  checking  them  up  on  the  business  they 
secure,  and  is  providing  the  proper  methods  of  train- 
ing them.  Lastly,  he  must  look  over  the  whole  field 
to  be  sure  that  the  department  is  securing  such  a 
volmne  of  business  at  such  a  cost  for  selling  expense 
as  will  leave  the  largest  possible  margin  of  profit. 


440  BUSINESS  PEINCIPLES 

In  treating  this  subject,  therefore,  from  the  point 
of  view  of  the  employer,  and  considered  as  a  part  of 
the  whole  field  of  business  organization,  we  must  of 
necessity  come  across  the  principles  that  especially 
concern  the  salesman.  And  if,  in  so  doing,  the  sub- 
ject becomes  broader  than  a  single  chapter  can  com- 
pletely compass,  there  is  much  to  be  gained  in 
keeping  to  a  logical  point  of  view;  while  it  must  be 
remembered  that  on  every  part  of  the  general  sub- 
ject of  business  organization  volimaes  could  be  writ- 
ten without  exhausting  the  field. 

Every  employer  has  to  face  the  question  as  to 
the  best  methods  of  selling  his  products.  Each  busi- 
ness has  peculiarities  of  its  own  which  call  for  special 
treatment.  Different  methods  of  manufacturing, 
different  classes  of  people  to  whom  the  product  must 
be  sold,  different  considerations  of  territory  to  be 
reached,  all  will  call  for  variations  in  systems  of 
advertising  and  of  selling  adapted  to  the  natirre  of. 
each  particular  case.  Yet  there  are  principles  that 
will  apply  to  almost  any  kind  of  business ;  the  build- 
ing up  of  an  efficient  organization,  and  the  develop- 
ment of  a  highly  trained  selling  force  are  liable  to 
make  in  almost  any  line  of  business  all  the  difference 
between  large  profits  and  none  at  all. 

The  well  known  difference  in  the  abilities  of 
different  salesmen  inclines  many  to  the  belief  that 
scientific  development  of  the  selling  end  of  a  business 
is  all  nonsense.  The  generally  accepted  theory  that 
salesmen  are  bom,  not  made,  has  caused  many  an 
otherwise  wide-awake  business  man  to  let  his  sales 
department  take  care  of  itself.  The  man  who  will 
admit  that  workmen  may  be  trained  to  a  high  degree 


SALESMANSHIP  441 

of  efficiency,  who  will  follow  the  best  methods  of 
management  and  supervision,  will  nevertheless  often 
trust  chance  and  good  luck  to  take  care  of  his  sales, 
because  he  believes  it  is  out  of  human  power  to  make 
a  good  salesman  out  of  a  poor  one. 

That  some  men  are  born  salesmen,  no  one  will 
deny.  Some  fortunate  individuals  seem  gifted  with 
a  faculty  of  making  other  people  do  as  they  wish 
and  want  what  they  want.  Some  men  have  an 
impressive  carriage  and  a  way  of  saying  things  that 
makes  the  person  addressed  feel  as  though  all  the 
wisdom  of  the  centuries  is  treasured  in  their  words. 
As  a  manager  of  a  selling  department  in  a  large  con- 
cern once  facetiously  remarked,  **It  takes  a  big  man 
to  make  them  'come  over;'  I  never  hire  one,  if  I  can 
help  it,  that  weighs  less  than  two  hundred  pounds!" 

This  is  all  very  well  if  you  can  get  the  *'big"  men, 
and  if  your  business  is  mostly  with  people  who  are 
easily  impressed.  A  concern  that  has  to  do  busi- 
ness with  women,  or  ignorant  foreigners,  or  imsophis- 
ticated  inhabitants  of  regions  remote  from  the  cen- 
ters of  civilization  may  find  it  advantageous  to  lay 
particular  stress  on  dignity  of  bearing  and  impres- 
sive manners.  But  the  modem  business  man  is  not 
easily  impressed  by  mere  outward  show.  He  wants 
to  know  what  the  article  he  is  buying  is  like,  in  what 
respect  it  practically  differs  from  some  other  com- 
pany's product,  what  advantage  there  is  to  him  in 
the  use  of  this  article  rather  than  some  other.  Here 
is  where  innate  selling  ability  that  is  not  backed  up 
by  knowledge  will  only  make  for  an  interesting  con- 
versation, without  resulting  in  a  sale. 

What  is  to  be  gained,  then,  by  organization  of  a 


442  BUSINESS  PEINCIPLES 

sales  force  and  careful  training  of  the  men?  First 
there  is  the  wide  gulf  of  difference  between  the  man 
who  takes  orders  only  from  those  who  are  anxious 
to  buy  and  the  one  who,  because  of  his  skill  and 
knowledge  of  his  business,  persuades  the  indifferent 
or  the  hostile  to  take  his  product.  The  untrained 
salesman  starts  off  with  a  catalogue  and  a  hazy  mass 
of  large  words.  He  may  take  orders  because  he 
quotes  lower  prices  than  his  competitors;  and  firms 
who  pay  no  attention  to  the  training  of  salesmen 
find  this  costly  method  the  only  way  to  put  their 
goods  on  the  market.  The  trained  salesman  may 
be  lacking  in  impressiveness  of  carriage  and  a 
blithe  flow  of  words;  but  if  he  knows  what  he  is 
talking  about  he  will  soon  gain  the  respect  and 
attention  of  the  man  who  "wants  to  be  shown. '* 
And  the  business  man  today  always  does  "want  to 
be  shown."  He  will  listen  to  the  trained  salesman 
who  comes  to  him  loaded  to  the  muzzle  with  all  the 
fine  points  about  his  article,  who  knows  all  the 
defects  and  all  the  good  points  as  well  about  the  com- 
peting products,  who  has  heard  all  the  objections 
that  can  be  raised  against  his  own  goods  and  who 
knows  the  best  argument  for  each  objection. 

Another  advantage  of  a  proper  system  of  train- 
ing lies  in  the  fact  that  the  salesmen  may  be  brought 
together  to  cooperate  for  the  good  of  the  company. 
Many  firms  believe  in  the  policy  of  pitting  one  sales- 
man against  another  with  the  idea  that  each  will  do 
his  best  to  excel  his  fellow.  This  is  a  mistaken 
policy.  It  makes  the  salesmen  jealous  and  distrust- 
ful of  each  other,  and  instead  of  all  pulling  together 
for  the  benefit  of  the  house,  each  man  pulls  for  him- 


SALESMANSHIP  443 

self  alone  and  against  all  the  others.  Salesmen  of 
long  experience  and  training  will  invariably  discover 
points  and  methods  of  forcing  a  sale  home  that  should 
be  the  common  property  of  all.  Instead  of  sharing 
this  knowledge  with  the  newcomer  or  the  less  observ- 
ant, they  keep  it  for  their  own  use.  Oftentimes  the 
most  successful  means  of  demonstrating  the  merits 
of  goods  are  kept  as  a  monopoly  by  a  few  good  sales- 
men, and  the  employer  wonders  why  in  the  world 
Smith  and  Jones  cannot  make  the  sales  of  Smithson 
and  Johnson.  If  the  policy  of  setting  the  salesmen 
against  each  other  is  abandoned  for  one  that  will 
encourage  each  man  to  impart  what  knowledge  he 
has  gained  for  the  good  of  the  concern,  the  selling 
force  is  in  a  fair  way  of  being  composed  exclusively 
of  first-class  men. 

Lastly,  training  and  system  may  be  combined  to 
adapt  the  selling  force  to  the  output  of  the  factory 
and  to  the  demand  for  its  products,  and  to  secure 
changes  in  design  that  will  make  the  article  more 
marketable.  Records  may  be  kept  showing  just  how 
much  territory  is  covered  and  how  well,  whether 
competition  is  being  met  and  satisfactory  prices 
secured.  Reports  from  salesmen  may  be  procured 
showing  where  more  products  can  be  placed,  so  that 
any  contemplated  increase  in  the  factory  output  can 
be  adequately  provided  for  beforehand.  The  em- 
ployer may  also  secure  valuable  pointers  in  regard 
to  the  advertising  of  his  goods,  not  only  as  to  places 
where  local  advertising  will  do  the  most  good,  but 
also  as  to  the  features  on  which  most  stress  should 
be  laid  in  the  advertising  in  any  particular  locality. 
Slight  variations  in  standard  products  may  often  be 


4M  BUSINESS  PEINCIPLES 

made  with  fine  results,  to  meet  the  particular  needs 
of  any  one  region.  What  these  needs  are  can  some- 
times be  ascertained  only  by  the  man  on  the  field, 
and  salesmen  that  are  working  for  the  good  of 
the  firm  will  often  provide  suggestions  that  are 
invaluable. 

An  illustration  of  this  point  may  prove  sugges- 
tive. Not  long  ago  the  Arizona  agent  of  an  auto- 
mobile company  was  called  upon  to  explain  why  the 
sales  in  his  district  had  been  so  slow.  **It^s  tough 
sailing,"  he  said.  "The  engines  get  overheated,  and 
I  can't  get  away  from  that  fact.  When  you  can 
put  out  a  machine  that  will  plough  through  six  or 
eight  inches  of  red-hot  Arizona  alkali  in  a  burning 
sun  without  boiling  the  radiators,  I'll  sell  them  as 
fast  as  you  can  ship  them  to  me."  The  manager 
saw  at  once  that  a  special  type  of  machine  was  needed 
to  meet  the  peculiar  conditions  of  that  part  of  the 
country  and  made  arrangements  accordingly.  It 
was  not  difficult  to  force  a  larger  circulation  through 
the  water  jackets  of  engines  intended  for  the  alkali 
country,  and  the  machines  of  that  company  in  a  short 
time  enjoyed  a  popularity  equalled  by  no  other. 
Salesmen  that  have  been  properly  trained  will  keep 
ears  and  eyes  open  for  possibilities  of  improvement; 
they  may  mean  thousands  of  dollars  to  the  company. 

These  considerations  apply  directly  to  the  agency 
or  firm  that  is  actually  engaged  in  putting  the 
product  into  the  hands  of  the  consumer.  This  may 
or  may  not  be  the  manufacturer  of  the  goods.  There 
are  many  ways  by  which  the  manufacturer  may  dis- 
pose of  his  products  and  the  considerations  adduced 
above  will  apply  to  him  in  proportion  to  the  direct- 


SALESMANSHIP  445 

ness  of  his  connection  with  the  selling  end  of  his 
business.  To  illustrate,  we  may  briefly  review  some 
of  the  well  known  methods  of  selling. 

The  simplest  case  is  that  where  the  products  are 
sold  direct  to  the  consumer  by  the  selling  agents  of 
the  manufacturing  concern.  The  salesmen  are  paid 
by  the  company,  and  though  large  concerns  may 
maintain  branch  agencies,  these  are  all  under  the 
direct  control  of  a  central  sales  manager.  The  dis- 
advantages that  may  be  connected  with  this  plan 
are  not  difficiilt  to  see.  First,  the  company  is 
obliged  to  keep  on  hand  a  large  stock  of  goods,  on 
which  money  cannot  be  realized  until  they  reach  tne 
ultimate  consumer.  The  responsibility  of  market- 
ing the  goods  rests  on  the  company,  which  must  be 
prepared  to  bear  all  the  fluctuations  of  prices, 
changes  in  demand,  and  other  uncertainties  of  a 
changeful  world.  Then  again  it  may  be  that  other 
agencies  than  the  company  have  built  up  a  strong 
organization  for  marketing  these  particular  goods 
and  can  do  it  better  and  cheaper  than  the  manufac- 
turing concern.  All  these  points  have  to  be  con- 
sidered in  determining  the  best  means  of  dispos- 
ing of  products.  On  the  other  hand,  a  company  that 
sells  its  own  products  has  its  hand  at  the  helm,  or,  to 
shift  to  another  figure  of  speech,  has  its  fingers  on 
the  pulse  of  the  market.  The  management  then 
knows  definitely  whether  the  territory  is  being  cov- 
ered or  not,  and  whether  adequate  measures  are  being 
taken  to  present  the  goods  to  the  consumer.  Faults 
in  selling  organization  and  in  the  training  of  sales- 
men can  be  immediately  corrected.  Customers  pre- 
fer as  a  rule  to  deal  directly  with  the  main  office. 


446  BUSINESS  PKINCIPLES 

When  questions  come  up  as  to  prompt  delivery  of 
large  orders,  as  to  repairs  and  replacement  of  faulty 
products  and  the  like,  there  is  always  more  or  less 
delay  and  uncertainty  if  the  manufacturing  company 
can  only  be  reached  through  some  separate  concern 
that  is  doing  the  selling. 

The  plan  of  selling  to  separate  agencies  has  much 
to  commend  it.  In  this  case  the  agencies  themselves 
employ  salesmen  and  dispose  of  the  product  to  the 
consumer,  and  the  company  is  thus  relieved  of  all 
the  burden  of  maintaining  a  sales  department.  The 
product  is  sold  as  it  comes  from  the  factory  at  a 
definite  contract  price,  which  avoids  both  delay  and 
uncertainty  in  the  money  receipts  and  capital  loss 
in  keeping  large  stocks  of  goods  for  indefinite 
periods.  In  many  cases  contracts  for  delivery  can 
be  made  for  the  future  in  such  a  way  as  to  enable 
the  manufacturer  to  adjust  the  output  of  his  plant 
to  the  demand.  The  merits  of  this  plan  depend 
largely  on  circumstances.  The  intervention  of  a 
middle-man  seems  to  be  almost  a  necessity  in  many 
lines  of  industry.  The  flour  miller,  for  example,  is 
in  no  position  to  seell  his  product  direct  to  the  tens 
of  thousands  of  households  that  will  use  it.  Mar- 
keting here  demands  more  than  the  organization  of 
a  selling  force;  it  calls  for  the  organization  of  trans- 
portation, intimate  knowledge  of  local  conditions  in 
thousands  of  places,  the  development  of  a  system  of 
advertising  both  local  and  national,  and  facilities  for 
distribution  of  the  product  in  minute  quantities. 

Many  articles  are  of  such  a  nature  that  the  ad- 
vantages of  a  selling  department  in  the  manufactur- 
ing company  are  of  minor  importance.     The  con- 


SALESMANSHIP  447 

sumption  of  flour,  for  example,  camiot  be  '* coaxed." 
The  demand  for  it  is  said  to  be  inelastic.  The  most 
that  the  milling  concern  can  do  is  to  induce  people  to 
use  one  particular  brand  of  flour  in  preference  to 
some  other,  and  this  is  best  done  by  advertising. 
Next,  the  manufacturers  can  see  to  it  that  their  prod- 
uct is  distributed  so  that  prospective  purchasers 
can  secure  advertised  articles  at  the  nearest  retailers, 
and  their  work,  so  far  as  the  selling  end  of  their  busi- 
ness is  concerned,  is  practically  done. 

The  chief  demerit  of  the  middleman  system  is 
that  it  is  often  difficult  to  make  sure  that  the  selling 
agency  is  adequately  covering  the  ground  and  using 
all  means  to  develop  an  efficient  selling  force.  Espe- 
cially is  this  true  where  agencies  are  given  exclusive 
rights  over  certain  territories.  The  manufacturing 
company  very  often  does  not  come  into  contact  with 
the  individual  members  of  such  selling  agencies,  and 
does  not  know  whether  the  methods  employed  are 
such  as  to  secure  efficient  representation  and  han- 
dling of  the  company's  product.  Where  goods  are 
sold  through  exclusive  agencies  it  is  important 
that  there  be  a  close  connection  between  manufac- 
turer and  seller.  The  company  should  wherever  pos- 
sible secure  first-hand  knowledge  of  the  field  and  its 
possibilities  and  be  prepared  to  establish  a  branch 
office  of  its  own  wherever  agency  representation 
seems  inadequate.  If  this  is  impractical,  the  com- 
pany should  still  keep  its  hand  on  the  market  and  co- 
operate with  selling  agencies  in  every  way.  It  should 
see  that  the  salesmen  are  properly  trained,  and  that 
the  best  methods  of  securing  a  large  sale  of  product 
are  installed. 


448  BUSINESS  PEINCIPLES 

Granting  that  the  best  method  of  disposing  of  the 
product  has  been  determined,  we  come  to  a  more 
minute  consideration  of  a  scientific  system  of  train- 
ing salesmen.  The  importance  of  this  has  already 
been  enlarged  upon,  and  indeed  would  seem  to  be  so 
self-evident  that  every  employer  would  recognize  it, 
yet  strangely  enough  very  few  chief  executives  even 
know  what  can  be  and  has  been  done  in  this  direction. 
Many  thousands  of  dollars  are  spent  in  advertising, 
in  forcing  the  attention  of  the  public  upon  goods  by 
concerns  that  pay  no  attention  to  training  the  men 
upon  whom  they  must  depend  to  close  the  orders. 
Thousands  spent  on  advertising  are  often  thrown 
away  because  of  listless,  indifferent,  untrained  and 
jealous  members  in  the  selling  force.  A  highly 
trained,  loyal  and  active  selling  force  is  on  the  other 
hand  one  of  the  most  valuable  assets  a  firm  can  have. 

The  results  that  can  be  secured  by  developing  an 
efficient  selling  organization  have  recently  been  dem- 
onstrated by  several  of  our  largest  and  most  success- 
ful concerns.  Perhaps  the  most  brilliant  illustration 
is  that  furnished  by  the  National  Cash  Register  Com- 
pany, of  Dayton,  Ohio.  Mr.  John  H.  Patterson,  the 
president  of  this  company,  has  presented  to  the 
world  a  grand  object  lesson  in  the  application  of 
many  new  principles  of  business  management,  chief 
among  which  stands  his  work  in  developing  a  trained 
and  efficient  selling  organization.  A  number  of  con- 
cerns have  followed  his  example  with  decided  suc- 
cess. Nor  are  his  principles  applicable  to  only  one  line 
of  business;  they  have  been  adapted  to  the  conditions 
of  many  different  kinds  of  business  that  require  the 
marketing  of  goods  or  of  services.    The  system  em- 


SALESMANSHIP  449 

ployed  has  been  described  by  Mr.  C.  U.  Carpenter  in 
the  volume,  elsewhere  referred  to,  on  Profit-Making 
Management,  and  we  may  in  reviewing  this  plan, 
draw  therefrom  the  clear-cut  principles  that  make 
up  the  science  of  a  selling  system. 

There  are  two  essential  features  in  the  upbuilding 
of  a  selling  organization.  The  place  of  first  import- 
ance must  be  given  to  a  systematic  training  of  sales- 
men, but  first  in  point  of  time  and  logical  sequence 
comes  what  is  called  the  ''salesmen  demonstration 
meetings."  These  meetings  should  be  held  at  stated 
periods  and  frequently, — once  a  week,  if  practicable. 
Here  the  salesmen  meet  and  in  a  definite  program 
bring  out  the  points  that  experience  has  taught  them 
are  valuable  in  their  work.  The  value  and  impor- 
tance of  demonstration  meetings  appears  from  sev- 
eral considerations. 

First,  training  the  salesmen  may  occur  to  any- 
body, but  there  are  many  practical  difficulties  in  the 
way  of  starting  the  system.  If  the  men  are  arbitrarily 
commanded  to  start  training,  considerable  opposition 
may  be  expected.  In  the  demonstration  meetings 
support  and  enthusiasm  are  secured.  The  salesman 
is  not  asked  to  do  any  studying  at  first,  merely  to  at- 
tend the  meeting  and  contribute  what  ideas  he  may 
have  toward  its  success.  Moreover  he  will  be  given 
the  opportunity  here  to  bring  up  any  grievance  he 
may  have,  will  be  allowed  to  discuss  any  troubles  he 
may  have  met  that  are  affecting  his  efficiency,  and 
will  be  helped  out  of  his  difficulties.  Again,  an  ef- 
ficient training  system  cannot  be  devised  out  of  whole 
cloth  to  meet  the  special  needs  that  will  come  up  in 
any  business.    The  features  that  give  greatest  value 


450  BUSINESS  PEINCIPLES 

to  the  training  system  must  be  drawn  from  the  dis- 
cussions in  the  demonstration  meetings.  Then  when 
the  salesman  starts  in  training,  he  feels  that  he  has 
had  some  part  in  the  development  of  the  system,  in- 
asmuch as  his  own  arguments  are  often  used  and  his 
own  difficulties  provided  for.  He  knows  then  that 
the  training  will  be  of  practical  benefit  to  him.  The 
demonstration  meetings  so  accustom  him  to  the 
methods  employed  that  the  work  of  training  is  rid  of 
its  terrors. 

One  point  that  must  always  be  kept  in  mind,  if  the 
meetings  are  to  have  any  success  at  all,  is  that  every 
measure  must  be  taken  to  inject  new  interest  and  en- 
thusiasm into  the  salesmen.  They  must  be  made  to 
feel  that  their  interest  and  that  of  the  firm  are  identi- 
cal. They  must  be  induced  to  give  up  personal  rival- 
ries and  jealousies  for  the  sake  of  a  common  cause, 
and  made  to  understand  that  they  will  win  favor  with 
the  heads  of  the  concern  in  proportion  as  they  con- 
tribute to  the  success  of  the  meetings  and  bring  in 
suggestions  that  are  valuable  to  the  firm  and  helpful 
to  the  other  men.  They  should  be  stirred  to  make  a 
good  showing  in  the  demonstrations,  and  the  sales 
manager  should  invariably  be  present  to  make  per- 
sonal observations  of  the  value  of  the  part  taken  by 
each  man.  If  possible,  the  superintendent  or  the 
chief  executive  should  be  present  at  certain  meetings, 
for  it  acts  as  a  tremendous  stimulant  if  the  men  are 
compelled  to  perform  before  someone  high  in  author- 
ity. The  presence  of  sales  manager  and  higher  offic- 
ials will  not  only  contribute  to  the  success  of  the 
meeting  but  may  provide  valuable  suggestions  to  the 
heads  of  the  firm. 


SALESMANSHIP  451 

These  meetings  should  not  be  allowed  to  proceed 
at  haphazard.  A  definite  program  should  be  arranged, 
and  those  who  are  to  take  part  should  be  advised  be- 
fore hand.  While  the  most  important  and  interesting 
part  of  the  program  will  be  the  demonstrations  and 
discussions  of  the  salesmen  themselves,  addresses  on 
subjects  of  moment  will  contribute  much  to  the  value 
of  the  gatherings.  These  matters  should  be  so  ar- 
ranged as  to  make  up  an  interesting  program.  Let 
us  consider  some  of  the  items  that  may  be  brought 
forward. 

After  the  meeting  has  been  opened  there  may 
come  an  address  by  the  sales  manager  or  some  offi- 
cial, dealing  with  some  points  of  interest  about  the 
company's  products.  This  should  be  made  definite 
and  in  such  a  form  as  to  impart  information  that  will 
prove  of  value  to  the  salesman  in  his  next  day's  work. 
Subjects  for  such  addresses  will  readily  suggest 
themselves.  New  uses  for  the  company's  products; 
improvements  in  designs  and  appliances;  description 
of  new  products  and  fields  they  are  designed  to  fill; 
methods  of  manufacture  that  show  the  superiority  of 
the  company's  products  over  those  of  other  firms  or 
over  a  home-made  product;  these  and  many  other 
subjects  may  be  made  both  interesting  and  valuable. 
During  or  after  the  address  salesmen  should  be  ''en- 
com^aged  to  offer  criticisms,  make  suggestions,  or  ask 
for  further  information  on  obscure  points. 

The  demonstration  of  salesmanship,  following  the 
address,  should  be  carefully  planned  and  aim  to  illus- 
trate some  definite  point.  It  may  be  arranged  as  a 
little  play  in  which  one  part  is  taken  by  a  supposed 
customer  and  another  by  a  salesman,  while  two 


452  BUSINESS  PKINCIPLES 

others  act  as  critics.  The  part  of  customer  can  be 
taken  by  an  old  and  tried  salesman  who  knows  all 
difficulties  that  must  be  met  with  and  all  the  argu- 
ments that  must  be  answered,  while  a  less  expe- 
rienced man  undertakes  to  overcome  all  the  obstacles 
to  accomplishing  a  sale.  The  appointment  of  censors 
will  lead  to  a  discussion  of  points  brought  out,  first  by 
those  especially  appointed  to  act  as  critics  and  then 
by  the  whole  body  of  salesmen.  Discussion  both  in 
open  meeting  and  among  themselves  is  a  fruitful 
source  from  which  salesmen  derive  much  valuable  in- 
formation, new  viewpoints,  and  a  lively  interest  in 
the  problems  presented  to  them.  The  demonstra- 
tion plan  may  be  varied  in  numerous  ways.  For  ex- 
ample, two  demonstrations  may  be  given,  one  by  new 
men  and  one  by  those  more  experienced.  In  this  way 
not  only  do  the  new  men  learn  by  the  exhibition  of 
those  tried  in  the  service,  but  the  older  men  are 
spurred  on  not  to  be  outdone  by  the  younger.  Varia- 
tions can  be  introduced  and  great  interest  aroused  by 
having  a  sales  demonstration  interrupted  by  a  sales- 
man supposed  to  represent  a  strong  competitor. 

The  subjects  of  the  demonstrations  will  vary  with 
the  nature  of  the  business,  but  in  all  cases  should 
have  some  definite  aim  in  view.  If  the  salesmen  have 
a  large  and  varied  number  of  products  to  handle,  each 
of  which  or  each  class  of  which  presents  its  own  pecu- 
liar problems,  the  demonstrations  can  be  arranged  in 
logical  sequence  to  cover  gradually  the  whole  field. 
Oftentimes  it  happens  that  the  prospective  customers 
are  not  all  of  one  class  or  in  the  same  lines  of  busi- 
ness so  that  the  methods  of  dealing  with  one  set  of 
men  present  entirely  different  problems  from  those 


SALESMANSHIP  453 

encountered  in  dealing  with  another  set.  In  this  case 
the  demonstrations  may  be  arranged  in  a  series  that 
will  cover  all  degrees  and  conditions  of  possible  cus- 
tomers. Not  only  will  this  plan  serve  to  train  the 
salesmen  in  methods,  but  it  will  also  show  them  the 
possibilities  that  lie  in  a  careful  study  of  each  custo- 
mer's business,  financial  condition,  and  even  of  his 
little  personal  peculiarities  and  preferences.  Hours 
of  precious  time  are  wasted  trying  to  sell  the  wrong 
product  to  a  man  who  really  wants  something,  or  in 
trying  to  talk  up  a  high-priced  article  to  a  man  who 
appears  interested  but  who  will  not  buy  because  he 
can't  afford  it.  On  the  other  hand,  large  possibilities 
of  profit  and  commission  are  often  thrown  away 
through  not  attempting  to  interest  a  customer  who 
has  asked  for  a  cheap  article  in  a  higher-priced  prod- 
uct that  he  could  and  would  purchase  if  he  were 
shown  that  he  would  gain  by  so  doing.  Our  best  con- 
cerns are  devoting  a  great  deal  of  attention  to  devel- 
oping highly  effevtice  methods  of  convincing  a  custo- 
mer that  he  should  purchase  a  higher  priced  and 
more  profitable  article.  It  results  in  larger  profit  to 
the  concern,  larger  commissions  to  the  salesman  and 
usually  in  better  satisfaction  to  the  customer.  For  to 
use  a  well  known  advertising  phrase,  the  impression 
of  quality  lingers  after  the  price  has  been  forgotten. 

Keeping  in  mind  these  precepts,  the  subjects  of 
the  demonstrations  may  be  arranged  to  meet  the  con- 
ditions of  any  particular  case.  A  few  are  here  sug- 
gested : 

Selling  the  product  to  a  customer  with  whom 
quality  will  be  considered  before  price. 


454  BUSINESS  PRINCIPLES 

Selling  an  old  customer  a  product  he  has  not 
bought  before. 

Interesting  a  new  and  difficult  customer  in  a  low 
priced  or  second  hand  article. 

Selling  a  high  priced  product  to  a  man  asking  for 
a  low  priced  or  second  hand  article. 

Selling  a  new  product  to  a  man  who  has  an  old  one, 
taking  the  old  product  in  exchange  on  profitable 
terms. 

Selling  a  man  who  is  strongly  biased  in  favor  of 
some  competitor's  product. 

Selling  against  competition  from  a  competitor's 
salesman. 

Selling  a  product  that  has  not  before  been  put 
upon  the  market. 

The  stress  that  should  be  laid  on  any  particular 
subject  will  depend  on  conditions.  Where  a  concern 
plans  to  enter  a  field  in  which  the  competitor  is 
strongly  intrenched,  emphasis  will  be  laid  naturally 
on  methods  of  meeting  arguments  in  favor  of  some 
other  company's  product.  While  it  is  never  advis- 
able for  salesmen  to  ''run  down"  competitors'  prod- 
ucts, the  salesman  who  is  instructed  in  all  the  fea- 
tures good  and  bad  that  apply  to  competing  articles  is 
in  a  position  to  make  the  most  of  the  favorable  points 
in  his  own  line. 

If  the  business  is  one  in  which  exchanges  for  old 
products  plays  a  large  part,  it  is  highly  advantageous 
that  careful  attention  be  given  to  the  training  of  the 
salesmen  on  this  point.  In  their  eagerness  to  close  a 
deal  they  will  often  hastily  accede  to  terms  that  actu- 
ally mean  a  loss  to  the  company,  and  the  manager  or 
superintendent  may  not  know  that  drains  from  this 


SALESMANSHIP  456 

source  are  holding  back  the  favorable  balance  on  the 
profit  and  loss  sheet.  For  this  reason  the  manager 
should  in  such  cases  devise  a  careful  checking  up  sys- 
tem that  will  show  what  becomes  of  old  products,  at 
what  prices  they  are  sold,  and  what  has  been  the  net 
result  of  the  original  exchange  operation.  Some 
firms  make  a  practice  of  holding  each  salesman  re- 
sponsible for  the  profitable  disposal  of  articles  taken 
in  exchange  and  hold  up  the  commission  until  the  en- 
tire operation  has  been  consummated.  This  may  be  a 
desirable  rule  to  enforce  under  certain  circumstances. 
If  there  has  been  a  tendency  for  salesmen  to  be  too 
free  about  making  allowances,  this  plan  will  instil  the 
necessary  caution  and  insure  the  company  against 
dead  stock.  Yet  this  device  may  prove  too  severe. 
Salesmen  located  in  territory  where  there  is  no  call  at 
all  for  second  hand  products  will  be  held  back  from 
making  many  profitable  sales  by  this  rule.  Then  again 
some  salesmen  will  make  a  specialty  of  selling  old  or 
second  hand  articles,  and  it  is  better  to  turn  such 
products  over  to  them  than  to  compel  a  man  who  has 
a  knack  of  selling  high  priced  articles  to  be  responsi- 
ble for  everything  taken  in  exchange.  A  variation  of 
this  plan  is  to  hold  back  part  of  the  commission  until 
the  second  hand  product  is  sold,  and  the  necesary  ele- 
ment of  caution  may  be  instilled  by  making  the 
amount  of  the  commission  for  the  original  sale  de- 
pend more  or  less  on  the  price  received  for  the  prod- 
uct taken  in  exchange. 

The  most  puzzling  feature  about  exchange  trans- 
actions of  this  kind  is  that  the  profitableness  of  such 
operations  often  varies  from  month  to  month.  At  one 
time  the  demand  for  old  fashioned  or  slightly  used 


456  BUSINESS  PEINCIPLES 

models  may  be  active,  and  a  generous  allowance  on 
exchanges  may  be  made  with  profit.  The  best  way  of 
introduciQg  a  high  priced  article  of  convenience  in  a 
new  market  is  frequently  by  way  of  second  hand 
models.  Then  the  tide  is  liable  to  set  the  other  way 
and  everybody  wants  to  get  rid  of  their  old  models  in 
exchange  for  new  ones.  Allowance  figures  that  were 
before  profitable  will  now  load  the  company  up  with 
unsaleable  stock,  and  this  is  bound  to  happen  unless 
the  salesmen  are  kept  in  close  touch  with  conditions 
and  carefully  instructed  as  to  the  terms  they  should 
make  in  such  transactions. 

One  of  the  greatest  merits  of  the  demonstration 
system  is  the  confidence  that  it  injects  into  the  sales- 
man, confidence  both  in  the  merits  of  the  goods  he  is 
handling  and  in  himself  as  their  representative.  He 
learns  as  he  could  in  no  other  way,  all  the  superior 
qualities  of  his  company's  products,  and  all  the  better 
methods  of  presenting  their  desirability  to  the  pros- 
pective customer.  Any  matters  about  which  he  is  in 
doubt,  may  be  brought  up  in  meeting  and  discussed 
to  his  entire  satisfaction.  Or  the  point  about  which 
he  feels  uncertain  can  be  made  the  subject  of  a  dem- 
onstration. Oftentimes  a  salesman  who  has  met  with 
peculiar  difficulties  will  act  the  part  of  customer 
against  an  experienced  salesman  with  the  idea  of 
proving  his  contention  or  arming  himself  against  a 
repetition  of  his  experience.  The  salesman  rapidly 
gains  in  selfconfidence  by  having  to  appear  before 
his  fellows  and  superior  officers  in  demonstrations. 
His  mistakes  of  bearing,  manner,  voice  and  methods 
of  approach  are  pointed  out  to  him  for  elimination, 
and  he  gradually  becomes  more  and  more  certain  of 


SALESMANSHIP  457 

his  ability  to  do  and  say  the  right  thing  at  the  right 
time. 

An  important  number  on  the  demonstration  meet- 
ing program  may  consisit  of  a  talk  on  some  of  the 
general  important  points  of  salesmanship.  This,  like 
the  demonstration,  should  be  definite  and  should  em- 
phasize what  is  important.  The  subjects  may  in- 
clude : 

The  market  for  second-hand  products;  favorable 
and  unfavorable  terms  on  exchanges. 

How  knowledge  of  a  customer's  business  and 
characteristics  may  be  used  to  advantage.  Methods 
of  acquiring  this  knowledge. 

The  proper  order  in  which  to  marshall  your  argu- 
ments. Methods  of  introduction.  How  to  secure  the 
prospective  customer's  interest.  The  proper  time 
and  methods  of  closing  the  deal. 

What  the  salesman  may  promise  on  behalf  of  the 
house;  cautions  to  be  observed.  (In  this  connection 
emphasis  may  be  laid  on  the  importance  of  promising 
nothing  that  the  firm  will  not  be  prepared  to  fulfil, 
and  of  giving  the  house  a  reputation  for  the  strictest 
interpretation  of  the  precept,  a  "square  deal.") 

Importance  in  salesmanship  of  a  knowledge  of  the 
business. 

How  to  get  "new  business." 

Importance  of  tact,  manners,  dress,  perseverance 
and  of  attention  to  a  multitude  of  seemingly  small 
details  that  affect  a  salesman's  personality. 

There  are  many  so-called  schools  of  salesmanship 
which  make  a  specialty  of  giving  instruction  just  in 
such  subjects  as  are  above  outlined.  There  is  no 
doubt  that  many  men  have  gained  valuable  inf  orma- 


458  BUSINESS  PEINCIPLES 

tion  and  increased  their  efficiency  by  pursuing  a  gen- 
eral course  of  study  along  these  lines.  But  in  a  large 
measure,  each  business  is  a  law  unto  itself.  The  de- 
termination of  the  most  efficient  methods  of  selling 
each  product  will  require  a  special  study  of  that  prod- 
uct and  of  the  needs  of  the  men  for  whom  it  is  intend- 
ed. The  principles  of  successful  salesmanship  can  be 
named,  but  for  the  most  part  they  apply  in  a  different 
manner  to  each  different  line  of  business,  and  must 
be  taught  with  reference  to  that  business.  The  im- 
portance to  a  salesman  of  knowing  everything  about 
the  goods  he  handles,  of  having  all  their  **  talking 
points"  at  his  tongue's  end,  may  easily  be  pointed 
out,  but  a  mere  knowledge  of  this  principle  is  liable 
to  be  without  fruit  unless  the  salesman  has  an  oppor- 
tunity to  secure  instruction  about  his  special  line  of 
goods.  The  only  men  who  can  supply  this  need  are 
those  who  have  had  years  of  practical  experience  in 
making  or  selling  them.  It  is  for  this  reason  that  we 
have  avoided  plunging  into  a  discussion  of  salesman- 
ship in  general — indeed,  many  volumes  have  been 
written  on  that  subject — and  are  endeavoring  to 
show  how  the  principles  that  are  involved  may  be 
made  of  practical  application  in  any  line  of  business. 
Sales  talks  should  prove  of  great  benefit  to  the 
men,  both  as  to  the  information  immediately  gained 
by  those  present  and  as  a  basis  for  a  systematic  train- 
ing system.  The  points  brought  forth  should  be 
taken  down  by  a  stenographer  and  mimeograph 
copies  distributed  to  the  men.  In  this  way  salesmen 
in  distant  branch  agencies  will  be  enabled  to  profit 
by  the  instruction.  In  fact,  the  minutes  of  salesmen's 
meetings  should  be  sent  to  all  the  local  branches  with 


SALESMANSHIP  459 

comments  by  the  general  manager,  to  serve  as  a 
model  for  the  local  demonstration  meetings  and  to 
keep  the  branches  in  touch  with  the  best  and  latest 
methods  and  results.  Needless  to  say,  the  sales  mana- 
ger should  also  insist  upon  receiving  full  reports 
from  all  the  local  agencies.  These  may  provide  him 
with  information  that  has  not,  or  perhaps  could  not, 
come  to  him  from  the  meetings  at  the  home  office, 
information  that  will  prove  valuable  in  a  number  of 
ways.  It  gives  him  a  direct  line  on  the  quality  of  the 
salesmen  throughout  the  whole  extent  of  the  organi- 
zation. Moreover  the  men  in  the  most  distant 
branches  are  impelled  to  do  their  best,  knowing  that 
the  character  of  their  work  will  come  before  the  eye 
of  the  general  sales  manager.  Capable  salesmen  may 
be  still  further  spurred  on  by  the  plan  of  having  the 
best  men  from  the  branches  come  in  from  time  to 
time  and  give  demonstrations  at  the  home  office  meet- 
ings. All  these  features  increase  the  efficiency  of  the 
system  and  bind  the  entire  organization  into  a  com- 
pact whole  that  avoids  the  mistakes  and  shares  the 
good  points  of  each  of  the  units  of  which  it  is  com- 
posed. 

Another  important  feature  of  the  regular  meet- 
ings is  a  discussion  of  the  individual  sales  records. 
The  business  of  each  week  can  be  compared  with 
that  of  the  week  before,  and  salesmen  who  have  not 
come  up  to  the  average  will  be  faced  with  the  prob- 
lem of  explaining  why,  before  men  who  know.  The 
principle  involved  here  is  the  same  one  that  we  saw 
illustrated  in  the  case  of  the  foremen's  meetings, 
where  the  individual  foremen  were  compelled  to  ex- 


460  BUSINESS  PEINCIPLES 

hibit  their  output  as  compared  with  costs  before  their 
fellows.  Every  man  will  strive  to  his  uttermost  to 
present  a  good  record  if  he  knows  that  his  results  will 
be  openly  discussed  before  his  fellow  salesmen  and 
his  superior  officers.  The  weak  and  indifferent  sales- 
man is  thereby  compelled  cut  and  out  to  admit  his 
inefficiency,  while  he  who  has  made  a  good  record 
stands  out  in  high  relief  before  his  fellows  and  before 
the  men  who  hold  in  their  hands  the  rewards  of  merit. 
Promotion  and  higher  pay  are  thus  meted  out  to  the 
deserving  without  arousing  suspicion  or  jealousy  on 
the  part  of  the  less  capable,  while  those  whose  work 
has  earned  only  decreased  pay  or  discharge  can  find 
no  cause  of  complaint. 

Other  matters  may  come  up  for  discussion  in 
salesmen's  meetings  depending  on  conditions  and  the 
character  of  the  business.  A  most  important  point  is 
that  of  suggestions  for  new  products  or  improvement 
on  the  old.  Salesmen  are  in  a  position  to  know  better 
than  any  other  the  needs  of  the  market  and  little 
points  that  would  make  their  own  products  more 
saleable.  Many  concerns  now  not  only  invite  discus- 
sion of  these  points,  but  have  developed  systematic 
plans  to  secure  and  utilize  suggestions  as  to  new 
products  or  new  designs.  This  is  done  by  having  a 
*' suggestion  box"  into  which  employes  can  slip  a 
written  outline  of  ideas  that  seem  to  them  valuable. 
These  ideas  are  given  careful  examination  and  the 
more  promising  ones  are  investigated.  Those  that 
prove  worthy  of  acceptance  are  paid  for  at  such  a 
rate  as  will  encourage  all  to  keep  ears  and  eyes  open 
for  new  ideas  that  may  prove  valuable  to  the  com- 
pany. 


SALESMANSHIP  461 

Side  by  side  with  the  ** suggestion  box'*  should 
come  the  ^  *  complaint  box. ' '  Grievances  real  and  im- 
aginary should  have  an  outlet,  and  prompt  steps  tak- 
en to  rectify  complaints  based  on  a  solid  foundation 
of  fact.  The  company  thus  gets  a  line  on  the  em- 
ploye's point  of  view,  and  may  often  avert  fruitful 
sources  of  trouble  and  misunderstanding  by  doing 
away  with  unsatisfactory  conditions  as  soon  as  they 
arise.  Indeed,  the  idea  of  complaint  and  suggestion 
boxes  may  be  carried  out  in  all  departments  with  ex- 
cellent results. 

Salesmen's  demonstration  meetings,  valuable  as 
they  are  in  arousing  interest  and  enthusiasm  and  in 
spurring  the  men  on  to  their  best  efforts,  do  not  pro- 
vide all  that  is  needed  to  make  up  a  force  of  really 
first  class  salesmen.  The  instruction  provided  from 
week  to  week  is  more  or  less  desultory  in  character, 
and  while  the  lectures  and  demonstrations  should 
proceed  in  logical  sequence,  a  new  man  coming  in 
find  himself  in  possession  only  of  detached  and  iso- 
lated slices  of  the  proper  selling  methods.  Again,  all 
men  will  not  need  the  same  amount  Of  attention;  pro- 
vision is  necessary  to  take  special  care  with  the  slow 
and  backward  ones.  New  men  should  have  at  the 
beginning  a  knowledge  of  the  best  methods  covering 
the  entire  field,  so  that  they  may  see  the  relation  of 
the  different  parts  to  the  whole  and  begin  to  apply 
the  principles  learned  at  the  outset  of  their  selling 
career.  Lastly,  the  regular  meetings  do  not  provide 
systematic  training  for  all  the  men  in  all  the  branches 
of  their  work.  It  does  not  insiu*e  the  proper  applica- 
tion of  the  best  methods  in  the  field.    These  advan- 


462  BUSINESS  PRINCIPLES 

tages  can  be  gained  only  by  the  development  of  a 
strong  training  department. 

The  importance  of  securing  a  proper  instructor 
will  at  once  be  obvious.  The  sales  manager  cannot 
do  the  work  required  and  attend  to  his  other  duties, 
unless  the  sales  force  is  a  small  and  local  one.  The 
man  selected  should  have  a  wide  and  successful  ex- 
perience in  selling,  together  with  tact,  patience  and 
executive  abilities  that  will  command  the  respect  of 
the  men. 

The  work  of  first  and  greatest  importance  is  to 
prepare  an  instruction  book  for  salesmen.  The  mate- 
rial for  this  may  be  drawn  from  the  reports  of  the 
demonstration  meetings.  It  will  contain  in  a  con- 
densed form  all  the  important  points  that  have  been 
brought  out  in  the  proceedings  of  the  meetings.  The 
instruction  book  should  contain  such  matters  as  the 
following: 

1.  A  description  of  each  product  and  the  uses  to 
which  it  may  be  put,  a  description  of  the  different 
lines  of  business  to  which  each  product  is  especially 
adapted,  together  with  a  thorough  explanation  of  the 
arguments  that  may  be  adduced  in  favor  of  each 
product  for  each  class  of  customers. 

2.  A  careful  analysis  of  the  best  methods  of  gain- 
ing the  attention  and  interest  of  each  class  of  custo- 
mers. With  this  may  be  coupled  some  explanation  of 
how  to  find  out  important  details  as  to  a  prospective 
customer's  business  and  personal  traits,  and  to  use 
the  information  so  gained  in  enlisting  his  attention. 

3.  A  thorough  lining  up  of  the  order  in  which  the 
arguments  for  each  product  shoidd  be  marshalled,  to- 


SALESMANSHIP  463 

gether  with  the  best  ways  of  closing  the  deal.  In 
many  cases  the  point  between  the  demonstration  and 
the  "closing  argmnents"  may  be  clearly  defined;  and 
in  fact  all  the  talking  parts  of  the  art  of  salesmanship 
should  be  carefully  drawn  up  and  as  painstakingly 
studied  as  the  lines  in  a  play. 

4.  A  list  of  competitor's  products,  with  the  de- 
fects and  good  points  of  each  as  compared  with  the 
company's  products.  In  connection  with  methods  of 
showing  the  superiority  or  greater  general  desirabil- 
ity of  the  company's  products  it  is  often  important 
to  show  salesmen  how  to  "get  ahead  of  the  other  fel- 
low" by  little  attentions  to  the  comfort  or  con- 
venience of  the  customer.  Especially  is  this  neces- 
sary where  rival  concerns  are  exploiting  precisely  the 
same  article,  which  sells  at  a  fixed  and  unchangeable 
price.  In  cases  of  this  kind  the  man  who  gets  the 
order  is  the  one  who  pays  special  attention  to  quick 
service,  to  convenient  and  rapid  deliveries,  to  all  that 
makes  his  house,  in  the  mind  of  the  customer,  a  de- 
lightful firm  with  which  to  deal. 

5.  A  list  of  objections  usually  put  forth  against 
making  a  purchase,  with  the  answer  to  each  one.  In 
the  demonstration  meetings  salesmen  should  be  en- 
couraged to  set  forth  all  the  objections  which  they 
have  met  with.  These  should  be  listed  and  classified, 
together  with  ways  of  meeting  these  objections.  The 
answers  may  be  brought  out  in  demonstrations  or 
through  discussion  among  the  salesmen.  Particu- 
larly knotty  problems  should  be  referred  to  the  man- 
agers of  the  branch  agencies  for  discussion  in  the 
regular  salesmen's  meetings  in  different  parts  of  the 


464  BUSINESS  PEINCIPLES 

country.  In  this  way  the  best  method  of  meeting 
each  objection  that  the  most  canny  customer  can  put 
forth  may  be  at  the  disposal  of  the  least  experienced 
salesman. 

6.  Methods  of  treating  second  hand  sales  and  ex- 
change sales.  The  data  for  these  will  naturally  be 
secured  from  the  demonstration  meetings.  Much  at- 
tention should  be  given  to  an  explanation  of  the  best 
methods  of  selling  a  high  priced  product  to  a  custo- 
mer who  desires  a  low  priced  or  second  hand  article. 

The  training  of  the  salesmen  by  the  instructor  is 
divided  into  two  parts — work  in  the  office  and  work 
in  the  field.  A  large  part  of  the  office  work  has  been 
illustrated  in  the  description  of  the  salesmen's  meet- 
ings. Each  man  should  be  made  to  learn  the  instruc- 
tion book  by  heart,  from  cover  to  cover.  Drilling  in 
the  different  points  of  salesmanship  under  varying 
conditions  should  be  conducted  along  the  lines  of  the 
demonstrations  in  the  salesmen's  meetings.  Each 
new  man  should  be  compelled  to  exhibit  several  times 
before  the  entire  body  of  salesmen.  When  he  is  letter- 
perfect  in  his  various  parts  and  has  been  started  out 
in  a  territory,  his  field  training  begins.  The  instruc- 
tor should  accompany  him  as  often  as  the  case  seems 
to  require,  to  note  his  methods.  Anything  that  is 
lacking  in  his  words,  manner,  or  way  of  handling  a 
case  may  thus  be  marked  for  correction.  The  sales- 
man who  is  lacking  in  confidence  or  who  falls  short  in 
one  point  or  another  can  then  be  called  back  to  the 
platform  and  thoroughly  drilled  on  these  features  in 
the  demonstration  meetings. 

This  method  of  training  can  be  applied  both  to 


SALESMANSHIP  466 

new  men  and  to  experienced  salesmen  who  for  one 
reason  or  another  are  not  coming  up  to  their  full 
quota  of  sales.  Wherever  possible,  it  is  advisable  that 
men  in  the  local  agencies  should  receive  their  initial 
training  at  the  home  office ;  and  when  they  are  sent 
out  to  the  different  territories  the  local  managers 
should  give  them  the  same  attention.  The  instructor 
should  also  make  the  round  of  the  local  offices  and 
note  closely  the  system  of  training  and  the  salesmen's 
methods  in  each  one.  The  local  managers  should  also 
from  time  to  time  be  called  into  the  home  office,  in 
order  that  they  may  by  personal  contact  be  kept  in 
close  touch  with  the  best  system  of  training. 

It  is  needless  to  point  out  that  the  keeping  of  ac- 
curate records  of  each  salesmen's  work  should  be 
used  to  the  fullest  extent  to  inspire  and  spur  them  on 
to  their  best  efforts.  The  salesmen's  reports  can  be 
used  also  as  a  means  of  determining  what  points  need 
looking  after  in  the  training  system,  and  to  what  ex- 
tent each  man  is  covering  his  territory.  Each  sales- 
man, as  far  as  possible,  should  be  provided  with  a 
comprehensive  list  of  prospective  customers.  His  re- 
ports should  show  exactly  what  has  been  the  result  of 
his  call  upon  each  customer.  To  this  end  he  should 
make  a  daily  report  of  failure  as  well  as  a  report  of 
sales,  and  his  failure  report  should  show  why  he 
failed  to  sell.  Even  in  case  of  failure  the  salesman 
can  note  what  products  he  thinks  the  prospective  cus- 
tomer needs,  so  that  the  proper  kind  of  advertising 
matter  may  be  sent  out  pending  the  salesman's  next 
visit. 


466  BUSINESS  PEINCIPLES 

The  devising  of  a  proper  system  of  sales  reports 
will  depend  so  much  on  the  nature  of  the  business 
that  we  can  only  point  out  thus  briefly  how  they  may 
be  used.  Such  reports  are  capable  of  being  put  to 
uses  which  will  be  of  immense  benefit  to  the  business, 
especially  when  employed  in  connection  with  a  sys- 
tem of  training  salesmen  such  as  has  been  described. 
In  the  next  chapter  we  shall  consider  how  the  sales 
reports  may  be  used  in  building  up  an  effective 
advertising  campaign. 


CHAPTER  XVin. 
ADVERTISINa. 

Advertising  may  be  studied  from  many  view- 
points. It  may  be  considered  with  reference  to  its 
revolutionizing  effect  on  business.  Modern  adver- 
tising multiplies  human  wants  and  human  desires; 
it  makes  the  luxuries  of  yesterday  the  necessities  of 
today;  it  creates  new  and  undreamed-of  demands,  it 
builds  factories,  sky-scrapers  and  railroads.  There 
is  material  here  for  a  most  interesting  treatment  of 
advertising  in  relation  to  the  evolution  of  modern 
industrialism. 

Advertising  may  be  regarded  from  the  psycho- 
logical viewpoint.  While  a  knowledge  of  the  opera- 
tions of  the  himian  mind  is  everywhere  accepted  as 
an  indispensable  condition  of  success  in  all  branches 
of  business,  it  is  in  advertising  and  related  subjects 
that  the  greatest  advance  has  been  made  in  the  sys- 
tematic, scientific  study  of  the  psychology  of  busi- 
ness. It  is  evident  that  a  successful  advertisement 
must  exert  a  strong  and  peculiar  influence  upon  the 
brain  paths  of  the  people  it  is  intended  to  reach. 
Good  "copy''  must  attract  the  attention  of  the 
reader;  it  must  interest  him  enough  to  hold  his  at- 
tention; and  it  must  stimulate  in  him  the  desire  of 
possession.   The  excitation  of  these  different  mental 

467 


468  BUSINESS  PRINCIPLES 

states  and  impulses  is  governed  by  definite  laws, 
that  determine  the  operation  of  various  forces  upon 
the  hmnan  mind.  Certainly  no  one  who  intends  to 
go  into  this  matter  thoroughly  can  safely  disregard 
the  bearing  of  psychology  upon  the  subject. 

The  innumerable  mediums  employed  in  securing 
publicity  and  the  relative  merits  of  each  could  form 
the  subject  of  an  exhaustive  study.  There  are 
newspapers,  magazines  and  journals;  there  are  bill- 
boards, dead  walls  and  blank  delivery  wagons;  there 
are  spaces  in  street-cars,  telegraph  poles  and  elec- 
tric flash  frames;  there  are  letters,  circulars,  cata- 
logues, mailing  lists, — a  thousand  avenues  of  ex- 
ploitation, each  of  which  has  its  use,  its  legitimate 
function,  different  from  that  of  any  other.  No  man 
who  intends  to  bring  his  product  to  the  attention  of 
the  public  can  afford  not  to  know  something  about 
the  different  methods  of  exploitation,  what  kind  of 
people  they  reach,  in  what  way  they  affect  the  minds 
of  those  who  see  them,  and  what  fitness  each 
medium  has  to  give  the  amount  and  quality  of  pub- 
licity that  his  product  calls  for. 

As  a  branch  of  business  organization  advertising 
assumes  a  somewhat  different  aspect.  It  is  to  this 
point  of  view  that  we  must  logically  confine  our- 
selves, just  as  in  the  case  of  the  chapter  on  sales- 
manship. The  two  subjects  are  so  closely  related  at 
all  points  that  many  of  the  principles  brought  out  in 
the  preceding  section  may  be  applied  successfully 
to  problems  of  publicity.  Moreover,  just  as  the 
problem  in  regard  to  a  sales  organization  was  inti- 
mately connected  with  the  more  specific  questions 
relating  to  the  personal  training  of  the  salesmen,  so 


ADVERTISING  469 

advertising  treated  as  a  branch  of  business  organ- 
ization will  demand  some  consideration  of  the  fea- 
tures that  go  to  make  good  "copy,"  of  publicity 
mediums,  and  of  the  psychological  elements  in  suc- 
cessful exploitation.  It  must  be  understood,  how- 
ever, that  in  treating  the  subject  from  this  some- 
what restricted  point  of  view,  we  can  only  point  in 
passing  to  a  few  of  the  fields  which  together  make 
up  the  great  range  of  the  subject  of  advertising. 

To  plunge  at  once  into  the  middle  of  our  subject, 
the  first  question  that  should  be  considered  by  a 
firm  that  makes  extensive  use  of  advertising  media 
is  the  selection  of  a  manager.  The  time  has  gone  by 
when  the  preparation  of  an  advertisement  or  the 
planning  of  a  campaign  can  be  left  to  one  of  the 
clerks  or  an  office  boy.  A  business  firm  that  is  pay- 
ing for  costly  space  in  newspapers  or  magazines  can- 
not neglect  to  use  every  instrumentality  in  its 
power  to  make  that  space  bring  in  the  largest 
returns  from  the  money  invested.  With  ten  thou- 
sand voices  clamoring  at  the  ears  of  the  consmning 
public,  only  a  trimapet  blast  can  hope  to  be  heard. 
Advertising  is  too  large  a  factor  in  modern  business 
to  be  trusted  to  anyone  but  an  expert.  In  most 
instances  a  large  firm  will  find  it  a  wise  and  profit- 
able investment  to  employ  a  man  who  has  had  con- 
siderable experience  in  advertising  matters  to  give 
this  department  his  thought  and  study  to  the  exclu- 
sion of  aU  other  activities  and  interests.  If  the 
employment  of  a  ten  thousand  dollar  advertising 
manager  increases  the  annual  sales  of  a  business  by 
half  a  million  dollars  and  builds  up  good-will  and  a 


470  BUSINESS  PEINCIPLBS 

clientele  that  assure  large  profits  for  years  to  come, 
no  one  can  doubt  the  wisdom  of  the  investment. 

The  qualities  such  a  man  should  possess  are  vari- 
ous. First,  of  course,  he  must  be  a  man  of  ideas  and 
imagination.  The  value  of  imagination  in  business 
cannot  easily  be  overestimated,  and  it  is  in  adver- 
tising work  that  this  faculty  has  its  freest  play. 
The  advertiser  must  not  only  be  able  to  devise  all 
manner  of  new  ways  of  presenting  his  product,  but 
must  be  able  to  see  beforehand  the  impression  it  is 
going  to  make  in  the  mind  of  the  reader. 

Second,  the  advertiser  must  know  all  about  his 
product.  He  must  be  a  man  who  can  get  into  the 
atmosphere  of  the  factory  where  it  is  produced.  He 
must  be  ready,  if  necessary,  to  live  in  the  factory 
and  office  of  the  concern  for  a  year  and  think  of 
nothing  else.  In  what  other  way  can  the  writer  of 
advertising  copy  secure  the  information  and  acquire 
the  enthusiasm  that  are  necessary  to  an  effectual 
exploitation  of  the  product  ? 

Third,  he  must  be  a  man  who  can  effectually  co- 
operate with  the  other  departments,  particularly 
the  sales  organization.  It  is  from  those  who  handle 
the  product,  who  meet  the  public  with  the  goods 
in  their  hands,  so  to  speak,  that  the  advertising 
manager  will  get  his  most  valuable  ideas.  This 
co-operation  can  be  made  effective  in  assisting  the 
work  and  increasing  the  efficiency  of  the  adver- 
tising man.  In  the  case  of  a  department  store  that 
uses  a  page  in  the  daily  papers,  for  example,  it 
becomes  a  physical  impossibility  for  an  advertising 
manager  to  fill  it  with  the  kind  of  copy  that  the 
necessities  of  the  case  require.    He  must  therefore 


ADVERTISING  471 

call  Upon  the  heads  or  managers  of  aU  departments 
for  a  written  statement  or  announcement  of  what 
each  department  has  to  offer  the  purchasing  public 
on  the  day  the  advertisement  is  to  appear.  In  this 
way,  much  of  the  physical  labor  of  collecting  data 
is  taken  off  his  shoulders,  and  he  is  left  free  to 
devote  his  energies  to  presenting  the  information 
in  an  attractive  and  convincing  way. 

A  large  part  of  the  advertising  manager's  work 
is  of  such  a  special  nature  that  the  most  careful 
and  painstaking  employer  will  have  to  leave  a  great 
deal  in  his  hands.  He  can  be  checked  up  only  in  a 
general  and  indirect  way,  namely,  by  noting  results, 
by  comparing  the  expense  for  advertising  with  the 
volume  of  business  done,  "before  and  after."  As 
he  must  be  trusted  to  a  considerable  degree  with  the 
expenditure  of  a  large  sima  of  money,  it  is  for  that 
reason  important  that  no  chances  be  taken  with 
man  of  doubtful  ability. 

The  manager  once  chosen,  no  pains  should  be 
spared  to  put  every  department  of  the  establishment 
in  touch  with  him  and  to  simplify  his  work  in  every 
possible  way.  He  should  be  provided  with  enough 
assistants  so  that  he  need  not  be  burdened  by  the 
necessary  clerical  work  involved  in  the  conduct  of 
such  a  department.  The  work  of  the  manager,  which 
is  purely  creative  and  constructive,  should  not  be 
hampered  by  tedious  details. 

We  have  spoken  of  co-operation  between  the 
advertising  man  and  the  sales  force.  If  the  selling 
organization  is  built  up  in  the  manner  described  in 
the  preceding  chapter,  it  can  be  used  in  a  most 
effective  manner  to  help  out  the  work  of  the  adver- 


472  BUSINESS  PEINCIPLES 

tising  department.  The  problem  of  the  salesman 
and  of  the  advertiser  is  in  many  respects  the  same. 
Each  must  present  the  merits  of  the  product  to  the 
consumer  in  an  interesting  and  convincing  way. 
The  questions  that  each  has  to  answer  are  the  same; 
the  points  each  has  to  bring  out  are  also  the  same. 
The  only  difference  is  that  the  advertising  man 
works  with  pen  and  picture  while  the  salesman  uses 
the  media  of  voice  and  manner.  Where  is  the  adver- 
tiser to  get  his  data,  his  information?  Why,  from 
the  same  source  as  the  salesman,  to  be  sure.  The 
training  of  the  salesman  could  be  very  aptly  applied 
to  the  advertiser. 

In  every  business  there  are  a  few  special  prob- 
lems that  have  to  be  constantly  faced.  Each  busi- 
ness has  one  or  more  wolves  howling  continually  at 
its  doors.  In  one  case  it  will  be  strong  competition 
in  two  or  three  forms;  in  another  public  prejudice 
in  favor  of  old  methods  and  old  products ;  in  another 
constant  changes  of  fashion  that  demand  the  con- 
tinually f oresighted  exploitation  of  the  latest  designs 
and  models.  The  sales  organization  has  to  attack 
these  problems  as  they  come  up;  the  advertiser  no 
less.  Is  it  competition?  Where  do  the  salesmen 
learn  about  the  good  points  and  bad  points  of  the 
competitors'  goods?  In  the  salesman's  training 
department  and  in  the  demonstration  meetings. 
Here  he  learns  too  what  good  points  in  his  own 
product  can  be  used  as  an  argimaent  in  favor  of  the 
competing  article.  These  are  exactly  the  points  that 
the  advertising  manager  wants  to  use  in  getting  up 
his  copy.  Is  it  prejudice  against  a  new-fangled  idea? 
The  salesmen  have  encountered  this  objection  all 


ADVEETISING  478 

over  the  country.  Demonstration  meetings  at  the 
home  office  and  in  all  the  branches  have  wrestled 
with  the  problem;  and  one  by  one  have  been  tm-ned 
in  impregnable  sets  of  arguments  to  meet  this  objec- 
tion. The  advertiser,  in  getting  up  his  copy,  wants 
to  know,  first,  what  the  worst  and  most  general 
objection  the  consumer  offers  against  purchasing  the 
product.  Second,  what  is  the  best  answer?  The 
salesmen's  reports  and  meetings  furnish  him  the 
desired  information  on  both  points. 

For  this  reason  the  advertising  manager  should 
be  an  active  member  and  take  an  active  part  in  the 
salesmen's  demonstration  meetings.  The  salesmen's 
reports  should  give  an  accurate  index  of  the  kind 
and  amount  of  advertising  that  will  do  the  most 
good.  Each  report,  whether  of  success  or  failure, 
should  turn  in  data  for  the  advertising  man.  A 
couple  of  lines  filled  out  by  the  salesman  after  each 
call  will  show  what  points,  what  features,  need  most 
to  be  emphasized  in  the  next  copy.  A  thousand  daily 
reports,  each  with  these  two  lines  filled  out,  may  be 
made  of  inestimable  value  to  a  business. 

What  objection  to  buying? 

Advertising  matter  as  follows 

The  usefulness  of  these  lines  is  obvious.  They 
not  only  tell  what  to  say  in  the  advertisement,  but 
often  tell  where  and  to  whom  to  say  it.  It  often 
happens,  for  example,  that  the  objections  of  one  part 
of  the  country  against  a  certain  product  will  not  be 
made  in  some  other  region.  To  lay  emphasis  on  the 
beauty,  speed  and  noiselessness  of  an  automobile 
might  make  a  great  hit  in  New  York  or  Massachu- 
setts, but  would  fall  flat  in  a  mountain  region  where 


474  BUSINESS  PRINCIPLES 

a  machine's  value  is  measured  by  its  ability  to 
negotiate  a  long,  steep  grade.  The  advertiser,  by 
what  to  feature  in  the  local  advertising  in  each 
from  different  parts  of  the  country,  knows  exactly 
checking  up  the  objections  to  buying  as  turned  in 
territory. 

This  principle  is  capable  of  almost  indefinite 
amplification.  For  example,  the  product  may  be 
something  that  is  sold  both  to  rich  and  poor;  but 
the  objections  of  the  rich  man  will  probably  be  dif- 
ferent from  those  of  the  poor  one.  The  salesmen's 
reports  will  naturally  show  the  financial  rating  of  the 
prospective  purchaser.  It  may  be  noted  that  the 
objections  of  the  well-to-do  all  run  in  one  direction, 
while  those  of  men  of  humbler  degree  veer  off  on 
quite  a  different  tack.  It  becomes  possible  then  to 
vary  the  advertising  and  the  media  to  meet  this  con- 
dition. Newspapers  and  periodicals  that  go  into 
workingmen's  homes  will  then  carry  advertisements 
that  lay  emphasis,  say,  on  the  low  price  of  such  a 
desirable  article,  while  the  journals  that  enter  the 
seats  of  the  mighty  will  convey  messages  in  which 
high  quality  is  brought  forward  for  inspection  and 
the  price  is  discreetly  kept  out  of  the  limelight. 

In  the  last  chapter  it  was  suggested  that  all  the 
objections  commonly  offered  against  the  purchase  of 
a  product  be  classified.  In  ninety-nine  cases  out  of 
a  hundred  the  objections  will  fall  within  a  few  well 
defined  classes.  This  classification  should  be  made 
the  basis  of  a  series  of  strong,  telling,  convincing 
advertisements,  that  can  be  used  to  push  effectively 
the  work  of  the  selling  force.  On  his  report  the 
salesman  will  fill  out  *' Kinds  of  product  needed," 


ADVERTISING  475 

''Date  of  next  call/'  "Advertising  matter  as  fol- 
lows.'^  This  information  should  be  used  to  send 
to  exactly  the  right  man  exactly  the  kind  of  adver- 
tising that  his  case  demands,  at  exactly  the  right 
time,  that  is,  just  before  the  salesman's  next  visit. 
The  last  line  can  be  made  to  do  double  service.  If 
a  sale  has  not  been  made,  it  will  indicate  the  kind 
of  advertising  that  in  the  salesman's  opinion  will  be 
most  effective  with  this  particular  customer.  But 
suppose  the  customer  has  placed  an  order  for  a  low 
priced  or  second  hand  product,  but  the  salesman  did 
not  quite  succeed  in  persuading  him  to  buy  a  higher 
priced  article.  The  idea  of  purchasing  the  more 
expensive  product  has  been  artfully  presented  to  the 
customer;  the  salesman  passes  the  word  to  the  pub- 
licity manager  on  his  sales  report;  and  the  customer 
is  bombarded  with  literature  containing  every  argu- 
ment that  can  be  devised  to  make  him  desire  a  better 
product.  When  the  salesman  calls  again,  if  there  is 
such  a  thing  possible  as  "raising  that  customer  up 
the  line,"  as  it  is  called,  an  order  will  be  placed  for 
the  higher  priced  and  more  profitable  product.  The 
wise  advertising  manager,  acquainted  with  the 
methods  of  training  the  salesmen  on  this  particular 
point,  will  have  circulars,  catalogues  and  a  "follow 
up"  system  designed  especially  to  meet  such  a  case. 
The  advertising  man  should  in  all  cases  make 
every  attempt  to  check  up  on  his  system.  He  should 
encourage  suggestions  at  all  times  from  the  sales- 
men; frequent  discussions  in  the  demonstration 
meetings  in  regard  to  the  results  of  different  pub- 
licity and  advertising  devices  will  give  a  very  clear 
idea  of  their  value  and  bring  up  points  worth  noting 


476  BUSINESS  PEINCIPLES 

for  improvement.  The  salesmen  are  the  ones  who 
have  their  fingers  upon  the  pulse  of  the  consuming 
public,  and  they  can  tell  at  once  whether  that  pulse 
is  quickening  or  slowing  down.  The  effect  of  any 
publicity  device  upon  any  class  of  customers  will  be 
noted  by  the  sales  force  first  of  all. 

Coming  down  to  the  narrower  question  of  making 
out  "copy,"  the  advertiser  again  should  make  use 
of  the  knowledge  and  experience  of  the  salesmen. 
An  advertisement,  as  we  have  seen,  must  on  the 
whole  present  the  same  arguments  to  the  customer, 
the  same  reasons  for  purchasing,  as  are  used  by  the 
salesman.  There  are,  of  course,  many  features  that 
must  be  determined  by  the  expert  knowledge  of  the 
advertiser.  Not  all  advertisements  are  **  reason 
why"  statements.  The  value  of  artistic  illustra- 
tions, bill-board  posters,  a  single  name  in  big  type 
in  a  newspaper,  electric  signs  and  the  like  fall  out- 
side of  the  salesman's  experience.  But  outside  of 
these  devices,  which  are  after  all  only  designed  to 
get  the  name  of  the  product  or  the  firm  before  the 
public  eye,  the  only  effective  advertising  is  the  kind 
that  makes  people  want  to  buy,  and  this  kind  must 
contain  "reasons  why."  The  salesman  is  the  one 
who  knows  why.  That  is  his  business.  The  adver- 
tiser should  consult  the  best  and  most  successful 
salesmen  in  getting  up  his  copy.  We  cannot  insist 
too  strongly  that  advertising  is  a  form  of  salesman- 
ship organized  in  a  different  way.  Its  scope,  its 
power  and  its  usefulness  lie  along  the  same  grooves 
as  salesmanship. 

What  is  good  advertising  copy?    To  answer  this 
question,   even   briefly,    we   must   consider   for   a 


ADVEETISING  477 

moment  the  place  of  an  advertisement  in  the  reader's 
*  Afield  of  consciousness,''  as  the  psychologist  puts 
it.  The  advertiser  in  a  magazine  or  a  newspaper  is 
an  interloper.  He  is  no  part  of  the  supposed  original 
plan  of  the  periodical.  He  forces  his  way  into  the 
field  with  his  more  or  less  alluring  pictures  or  state- 
ments when  the  reader  is  supposed  to  be  solely  en- 
grossed in  stories  of  corruption  in  high  places  or 
accounts  of  an  ex-president's  experiences  in  un- 
known lands.  And  just  because  he  is  a  mercenary 
intruder,  the  advertiser  must  be  the  most  skilful, 
the  most  adroit,  and  the  most  entertaining  of  all  the 
contributors  to  the  magazine  or  daily. 

The  modern  magazine  must  fill  its  reading  pages 
with  live  topics  of  current  public  interest.  To  secure 
circulation  it  must  compete  with  a  thousand  other 
magazines  that  are  striving  each  to  attract  and  hold 
the  largest  possible  number  of  readers.  The  day  of 
the  old  time  magazine,  that  contained  nothing  but 
poetry,  literature  and  long  drawn  out,  slow  moving 
romances,  is  past.  The  periodical  of  today  dissem- 
inates news  and  information  on  the  latest  topics, 
written  in  a  catchy,  interesting  style.  Just  as  the 
newspaper  or  magazine  must  hold  the  attention  of 
the  reader  away  from  other  competing  periodicals 
by  the  liveliness  of  its  reading  matter  and  style,  the 
advertiser  must  win  the  reader  from  the  main  body 
of  literature  or  news  by  being  more  artistic  and 
more  attractive  than  the  more  legitimate  writers. 
He  must  win  out  in  a  competition  raised  to  the 
second  power.  He  is  pitted  against  the  scholar,  the 
story  writer,  the  essayist,  the  artist.  He  must  turn 
out  better  material  than  they  do;  his  sentences  must 


478  BUSINESS  PEINCIPLES 

be  more  pithy,  more  to  the  point.  He  has  the  atten- 
tion of  the  reader  but  for  a  moment;  and  as  a  mer- 
cenary intruder  he  must  be  more  skilful,  more  force- 
ful, more  pointed,  more  convincing,  than  any  of  the 
other  writers  or  artists. 

The  same  rule  holds  good  for  advertisements  sent 
out  in  the  form  of  circular  letters,  folders,  bulletins 
or  catalogues.  If  the  advertiser  is  sending  material 
of  this  kind  to  a  man  who  is  already  interested  in 
the  product  (someone,  let  us  say,  who  has  written 
asking  for  information)  he  is  at  liberty  to  go  some- 
what into  detail.  Otherwise  the  circular  letter  or 
folder  is  an  intruder  of  the  worst  kind.  The  reader 
of  a  magazine  or  newspaper  admittedly  has  given 
himself  at  least  a  few  minutes  of  leism-e,  and  will 
regard  with  a  certain  amount  of  indulgence  an  at- 
tempt to  take  up  a  moment  of  his  time.  Matter 
coming  to  him  through  the  mail  may  knock  at  the 
threshold  of  consciousness  when  his  mind  is  filled 
with  a  thousand  business  cares  and  worries.  An 
advertisement  of  this  kind  must  really  be  a  work  of 
genius.  In  the  face  of  almost  insuperable  obstacles 
it  must  be  so  constructed  that  it  will  arouse  the 
interest  and  curiosity  of  the  reader  to  such  an  extent 
that  he  will  at  least  save  it  and  later  send  in  a  re- 
quest for  descriptive  matter  pertaining  to  the  com- 
modity advertised. 

In  a  certain  sense  we  can  apply  no  clear-cut  rules 
to  determine  the  value  of  advertising  copy.  Every- 
body knows  that  a  good  advertisement  must  be 
snappy,  interesting,  sincere,  convincing,  natural,  to 
the  point,  and  so  on  down  to  the  end  of  our  list  of 
commendatory  adjectives.  Yet  these  adjectives,  one, 


ADVERTISING  479 

two  or  many,  form  no  absolute  criteria.  In  the  last 
analysis  often  the  best  plan  is  to  set  the  copy  before 
an  unbiased  friend  and  note  what  his  first  comment 
is.  If  you  have  copy  intended  to  sell  mineral  water 
and  he  says  "What  a  pretty  girl — who  drew  the 
picture  for  you?"  you  are  on  a  blind  trail.  If  he 
says,  "That  makes  me  thirsty!"  get  the  copy  to  the 
publisher  at  once.  That  advertisement  will  sell  min- 
eral water. 

Remembering,  however,  what  advertising  copy 
must  do:  that  it  must  compete  with  the  best  maga- 
zines and  newspaper  literature,  must  steal  into  a 
man's  consciousness  ere  he  is  aware,  must  "creep 
and  intrude  and  climb  into  the  fold,"  we  can  find 
certain  methods  of  judging  whether  it  accomplishes 
its  purpose  or  not.  It  must  attract  attention,  it  must 
hold  attention  long  enough  to  let  at  least  one  idea 
sink  in,  and  it  must  convince  the  reader  that  he 
really  wants  the  article  advertised. 

To  attract  attention  as  the  first  requisite  in  a 
good  advertisement — that  is  easy  to  understand. 
The  reader  must  be  lured  or  pulled  or  pushed  away 
from  other  matters  that  are  occupying  his  mind. 
Unfortunately,  many  advertisement  writers  get  this 
far  and  no  farther.  It  is  easy  to  attract  attention. 
A  picture  of  an  alligator  standing  on  its  tail  will 
drag  a  man  from  an  editorial  on  "Who  discovered 
the  pole?"  Even  the  novice  in  word  juggling  can 
compel  a  flash  of  attention  by  heading  his  copy 
"YOUNG  MAN!"  But  it  is  one  thing  to  attract 
attention,  to  amuse,  to  entertain,  with  clever  pic- 
tures, verses,  or  stories;  and  quite  another  thing  to 


480  BUSINESS  PKINCIPLES 

interest  the  reader  in  the  article  advertised  and 
create  in  him  a  new  want. 

Not  many  years  ago,  when  the  craze  for  break- 
fast foods  was  at  its  height,  the  country  was  flooded 
with  verses  and  pictures  designed  to  attract  atten- 
tion to  different  varieties  of  cereals.  Far  the  greater 
part  of  these  got  no  farther  than  to  awaken  a  smile 
of  amused  interest.  Comparisons  and  criticism  of 
course  are  invidious;  but  by  this  time  most  of  the 
companies  that  have  not  gone  to  the  wall  have 
turned  from  the  error  of  their  advertising  ways  and 
will  gladly  lend  us  the  value  of  their  example  for 
the  good  it  may  do  to  others. 

Many  of  us  remember  the  picture  of  the  tall  thin 
man  and  his  short,  fat  companion  fussing  anxiously 
about  an  automobile.  A  bit  of  verse  attached  ex- 
plained the  picture  as  follows: 

"Tim  Tall,  Sim  Small  an  auto  bought. 
Wore  caps  and  smelt  of  gasoline; 
It  did  not  bring  the  health  they  sought, 
'Twas  Savor  saved  them,  no  machine.'' 

Both  picture  and  verse  were  catchy,  entertaining 
and  amusing  to  the  highest  degree.  Used  as  a  device 
at  the  beginning  of  a  long  advertising  campaign  to 
fix  the  name  of  the  cereal  in  the  public  mind  it  would 
have  served  its  purpose.  Isolated  and  alone,  it  had 
no  actual  selling  power.  It  did  not  persuade  or 
convince  the  average  man  that  he  should  buy  the 
product  advertised.  It  made  people  laugh,  not  buy. 
No  one  could  take  it  seriously.  It  would  not  stand 
a  chance  beside  an  advertisement  with  an  earnest 


ADVEETISING  481 

and  sincere  message  burning  through  it,  no  matter 
how  crudely  the  idea  was  expressed. 

Another  cereal  advertisement  repeatedly  pic- 
tured a  very  ** sunny''  and  vapidly  amiable  old  gen- 
tleman with  large  spectacles  on  his  nose.  He  cer- 
tainly attracted  attention;  for  awhile  his  name  was 
on  every  tongue.  Verses  and  pictures  added  materi- 
ally to  the  entertainment  and  amusement  of  an  all 
too  serious  world.  But  after  all,  did  the  advertise- 
ments contain  any  reason  why  this  particular  break- 
fast food  was  better  than  any  other?  Was  there 
anything  to  show  that  the  cereal  was  not  made  of 
cornhusks  or  sawdust?  Did  the  reproduction  of  that 
sunny  face,  suggestive  of  intellectual  vacuity  and 
physical  decrepitude,  convince  anyone  that  this  food 
would  give  health,  strength  or  other  desirable  bene- 
fits to  the  consumer?  In  the  measure  that  it  failed 
to  accomplish  these  results  it  fell  short  of  being  the 
best  kind  of  an  advertisement. 

That  is  not  to  say  that  the  advertisements  de- 
scribed accomplished  nothing.  They  did  let  people 
know  that  products  of  certain  brands  existed.  A 
man  who  had  already  contracted  the  breakfast  food 
habit  and  liked  to  experiment  around  with  different 
kinds  might  remember  the  name  mentioned  in  the 
little  jingles  and  find  it  on  the  tip  of  his  tongue  the 
next  time  he  entered  a  grocery  store  on  pabulum 
purposes  bent.  Thus  a  certain  number  of  sales 
would  be  effected  from  merely  advertising  the  name, 
which  would  not  occur  otherwise.  But  on  the  whole 
the  effect  is  entirely  different  from  that  of  an  adver- 
tisement planned  with  the  specific  purposes  of  creat- 
ing a  new  want,  of  convincing  the  consuming  public 


482  BUSINESS  PEINCIPLES 

that  it  wants  this  particular  product,  of  telling 
enough  about  its  merits  to  arouse  a  desire  to  pur- 
chase. 

Many  advertisements,  in  fact,  that  can  be  severely 
criticised  from  one  point  of  view  or  another,  are 
entirely  satisfactory  when  considered  with  reference 
to  the  effect  it  is  desired  to  produce.  The  public 
must  first  know  the  name  of  the  article  exploited, 
and  on  the  principle  of  putting  out  just  one  fact  at 
a  time  and  ramming  it  home,  it  may  be  a  very  good 
plan  to  start  a  campaign  on  a  name  alone,  following 
it  up  later  with  convincing  ''talking  points."  This 
is  particularly  true  in  cases  where  the  name  is  a 
valuable  asset,  that  will  attract  attention  from  its 
mere  repetition.  Many  instances  of  this  will  occur 
to  everyone,  ranging  from  much  needed  soda  biscuit 
to  the  Crackadura  cigar.  The  principles  involved  in 
advertising  are  well  illustrated  by  these  two  cases. 
Both  started  out  with  extensive  "name"  copy.  The 
plan  of  the  cigar  campaign  was  possibly  the  most 
spectacular.  For  perhaps  a  week  or  more  one  was 
met  everywhere  by  the  single  word  "Crackadura." 
Nobody  knew  what  it  meant  and  everybody  was 
asking  and  wondering.  The  exploiters  of  the 
product  were  cleverly  playing  upon  human  curiosity. 
Then  followed  a  series  of  half  hints,  giving  every- 
body a  chance  to  guess.  "Crackadura,  a  spasm  of 
delight  for  men,"  "Crackadura  and  a  cloud  of  joy," 
furnished  topic  for  wonderment,  conjecture  and 
argument.  When  the  cigar  came  out  and  declared 
itself  to  the  world,  the  smoking  public  rushed  up 
with  their  nickels. 

Now  undoubtedly  that  particular  cigar  had  some- 


ADVERTISING  483 

thing  to  commend  it  besides  the  name.  There  were 
probably  several  good  "talking  points"  that  could 
have  been  used  to  build  up  a  series  of  convincing 
advertisements  and  that  would  have  assured  it  a 
steady  trade.  What  the  exploiters  did,  however, 
was  to  keep  playing  with  the  name  alone.  "Crack- 
adura,  get  the  habit,"  "Ditto,  take  one  home  with 
you,"  went  the  rounds,  until  people  got  tired  of  the 
name.  Seeing  it  associated  with  nothing  but  a  lot 
of  inane  phrases,  even  the  regular  smokers  ceased 
to  read  the  advertisements.  They  carried  no  con- 
viction. Failure  to  follow  up  "name"  copy  with 
"reason  why"  copy  quickly  resulted  in  the  dis- 
appearance of  the  nine  days'  wonder  from  the  public 
mind  and  from  the  dealers'  stands. 

In  the  case  of  the  needed  biscuit,  "name"  copy 
was  first  exploited,  perhaps  less  spectacularly  but 
certainly  as  effectively,  as  in  the  case  of  the  cigar. 
Every  device  known  to  advertising  science  has  been 
employed  to  keep  the  name  before  the  public.  After 
awhile  this  was  accompanied  by  effective  "reason- 
why"  copy,  and  latterly  the  "talking  point"  feature 
has  predominated  over  devices  intended  merely  to 
remind  the  reader  of  the  product.  The  public  is  told 
that  the  product  is  put  up  in  air-tight,  moisture- 
proof  packages;  that  it  is  scientifically  clean  and 
wholesome;  that  it  will  not  absorb  the  odors  and 
flavors  of  other  articles  in  grocery  stdres;  that  it 
is  so  crisp  that  it  will  crumble  in  the  fingers.  People 
ask  for  that  product  because  there's  a  reason. 

While  it  is  obvious  that  spectacular  "name" 
copy  alone  cannot  build  up  a  steady  demand  for  the 
product,  we  see  that  it  often  serves  a  useful  first 


484  BUSINESS  PRINCIPLES 

purpose  in  bringing  the  product  prominently  before 
the  public  mind.  It  may  serve  other  purposes  also. 
Extensive  advertising  of  an  original  and  startling 
character  will  lead  dealers  who  handle  such  goods 
to  carry  big  stocks  and  push  the  brand,  even  though 
the  **copy"  is  not  of  a  kind  that  induces  purchases. 
Retail  dealers  are  not  as  a  rule  skilled  in  the  science 
of  advertising,  and  do  not  distinguish  the  convincing 
advertisements  from  those  which  merely  attract 
attention,  amuse  or  entertain.  They  will  stock  up 
with  anything  which  is  kept  before  the  public  eye, 
and  once  the  goods  are  on  their  shelves  will  make 
special  efforts  to  sell  them.  For  this  reason,  adver- 
tisements which  are  designed  solely  to  attract  atten- 
tion often  serve  a  useful  first  purpose.  But  unless 
this  is  followed  by  convincing  salesmanship  adver- 
tising there  will  be  no  steady  demand  for  the 
product,  and  the  first  order  from  the  dealer  is  liable 
to  be  the  last. 

The  result  above  mentioned  may  be  all  the 
advertiser  intends.  Very  often,  indeed,  the  sole 
purpose  of  extensive  spectacular  advertising  is  to 
get  the  product  widely  talked  about,  secure  a  first 
rush  of  orders  for  the  goods,  and  give  the  impression 
that  the  company  is  doing  an  enormous  amount  of 
business,  with  a  wonderful  future  before  it.  This 
influences  the  public  to  set  a  high  value  on  the  stock 
or  securities  of  the  company  which  is  manufacturing 
the  product.  The  effect  of  a  big  advertising  cam- 
paign on  the  securities  of  a  corporation  is  a  con- 
sideration not  to  be  overlooked.  Unfortunately,  this 
device  lends  itself  to  fraudulent  practices.  Many  a 
new  company  has  been  organized  ostensibly  to  man- 


ADVERTISING  486 

ufacture,  but  really  to  advertise.  Once  started,  it 
launches  forth  on  a  spectacular  campaign  similar 
to  that  of  the  Crackadura  cigar.  At  the  proper 
point  the  insiders  sell  out  their  stock  to  the  unhappy 
public  at  high  prices,  after  which  neither  product 
nor  company  is  heard  of  again. 

Again,  there  are  products  of  such  a  nature  that 
they  cannot  very  well  be  advertised  on  the  **  reason 
why"  plan.  In  the  case  of  a  soap  or  washing  pow- 
der about  all  that  can  be  done  is  to  ring  in  every  pos- 
sible variation  on  the  ** attract  attention''  system, 
for  there  is  not  very  much  in  the  way  of  convincing 
or  persuasive  argument  to  be  offered  in  behalf  of  the 
product.  A  catchy  name  or  a  fetching  trade  mark 
will,  if  the  advertisements  are  varied  and  original, 
prevent  people  from  passing  by  the  illustrations  and 
verses.  Everyone  remembers  the  ** Spotless  Town" 
article.  There  was  no  "reason  why"  copy  there  be- 
cause there  was  practically  nothing  to  be  urged  on 
the  subject.  To  argue  with  a  housewife  that  she 
ought  to  keep  her  house  clean  would  be  an  insult  to 
her  intelligence,  if  not  worse.  Such  a  series  of  ad- 
vertisements would  be  faulty  if  designed  to  trumpet 
the  merits  of  a  new  vacuum  cleaner  process,  but  in 
the  case  of  an  old  and  well-known  product  they 
accomplished  about  all  that  they  were  intended  to  do 
or  could  do,  namely,  kept  the  article  in  the  public 
mind.  More  recent  is  another  series  of  pictm'es  by 
the  same  company  designed  to  the  same  end.  For 
example,  there  is  a  drawing  of  an  opossum  walking 
along  the  limb  of  a  tree,  with  the  legend  *'You 

can't  play  'possum  with ."    This  is  an  extreme 

example  of  ''attract  attention"  advertising,  in  which 


486  BUSINESS  PEINCIPLES 

the  picture  bears  not  the  faintest  relation  to  the 
article  exploited.  Of  course  the  space  so  taken 
up  would  be  quite  valueless  to  any  company  whose 
product  is  not  as  well  known  as  the  one  in  ques- 
tion, but  in  this  case  only  a  reminder  is  necessary, 
and  the  originality  of  the  picture  will  cause  people 
to  look  at  it  who  would  not  even  glance  down 
the  most  clever  persuasive  argument  copy.  From 
the  nature  of  the  case,  the  best  this  company  can 
do  is  to  say,  with  as  many  variations  as  possible 
**We  are  at  the  same  old  stand,  making  the  same  old 
product.    Don't  forget  us.'' 

Another  company  that  is  in  the  same  boat  illus- 
trates very  well  the  value  of  a  clever  trade  mark. 
Whenever  you  see  two  jet  black  twins  industriously 
scrubbing  away  at  something,  you  are  immediately 
reminded  of  a  certain  washing  powder.  Now  the 
value  of  a  trade  mark  is  not  always  obvious.  True, 
when  it  is  employed  over  and  over  again  in  all  ad- 
vertising, it  is  not  easy  for  the  reader  to  escape  the 
product  at  the  first  glance.  If  the  intention  of  the 
company  is  merely  to  remind  the  reader,  this  is  all 
well  and  good.  But  suppose  the  trade  mark  is 
accompanied  by  clever,  convincing  copy;  the  ques- 
tion then  arises,  will  not  the  reader  merely  glance  at 
the  well  known  name  or  picture,  and  recognizing  at 
once  the  product  advertised  overlook  the  clever  copy 
and  turn  over  the  page?  The  purpose  of  a  trade 
mark  is  primarily  then  to  serve  as  a  reminder.  If 
the  advertisement  is  intended  to  educate  and  to  con- 
vince, the  trade  mark  should  not  be  given  too  promi- 
nent a  place  or  in  any  way  emphasized  too  strongly. 
In  the  case  of  the  famous  ** twins,"  the 


ADVEKTISING  487 

trade  mark  is  particularly  valuable  because  it  illus- 
trates the  one  use  to  which  the  product  can  be  put,  it 
is  capable  of  infinite  variety,  and  serves  excellently 
the  one  advertising  pm-pose  which  the  nature  of  the 
product  allows,  that  of  reminding  the  reader  of  its 
continued  existence. 

Yet,  when  one  thinks  of  it,  how  small  is  the  class 
of  commodities  that  can  be  used  for  only  one  pur- 
pose, that  have  no  points  of  difference  to  distinguish 
them  from  competing  products,  concerning  which  no 
arguments  can  be  made,  no  convincing  ^*  reasons- 
why''  formulated,  no  new  wants  created.  Count 
over  the  list  of  such  things  and  see  how  many  you 
can  find.  Then  turn  to  the  pages  of  some  big  maga- 
zine and  examine  the  advertisements  carefully.  How 
many  of  them  upon  close  inspection  have  no  other 
purpose  than  to  announce  a  name  or  a  trade  mark, 
to  let  the  reader  know  such  a  product  exists?  Could 
you,  if  you  were  writing  an  advertisement,  suggest 
for  many  of  these  articles  a  line  of  copy  that  would 
secure  for  them  something  more  than  mere  public- 
ity? Probably  on  the  list  you  have  made  of  commo- 
dities that  seemingly  cannot  advertise  tellingly  and 
convincingly  are  such  homely  articles  as  soap,  sugar 
and  lamp-chimneys.  Soap  has  long  been  considered 
as  almost  hopeless  in  this  respect,  yet  there  is  at 
least  one  soap  company  that  has  begun  to  try  for 
more  than  mere  '^reminder"  advertising.  It  has 
found  reasons  why  its  soap  is  to  be  preferred  above 
any  other,  and  is  devoting  whole  pages  to  pointing 
out  these  features  of  superiority.  Their  soap  floats; 
it  is  pure;  it  washes  fine  laces  without  damage;  it  is 
free  from  a  dangerous  proportion  of  alkali;  it  gives 


488  BUSINESS  PRIN-CIPLES 

more  cleansing  for  the  money  than  any  other  soap. 
That  company  is  selling  its  soap  because  people  are 
convinced  they  want  it  and  will  take  no  other. 

Sugar  certainly  seems  to  be  an  unpromising  sub- 
ject for  advertising.  There  is  no  competition  be- 
cause one  company  controls  the  market,  so  there  is 
no  need  to  argue  for  one  brand  of  sugar  in  prefer- 
ence to  some  other.  The  only  object  of  advertising 
would  be  to  increase  the  consumption  of  it  by  show- 
ing some  new  uses.  Evidently  the  sugar  trust  be- 
lieves there  is  something  in  this  idea,  for  we  have 
attractive  pictures  showing  dainty  lumps  of  sugar 
tumbling  out  of  a  box.  This  case  illustrates  also  one 
form  of  advertising  designed  to  interest  those  who 
have  hitherto  used  a  low-priced  article,  in  a  higher 
priced  and  more  profitable  product. 

At  least  one  man  has  decided  that  even  lamp 
chimneys  are  capable  of  persuasive  and  convincing 
advertising.  This  man  has  got  up  some  very  sales- 
manlike copy  without  using  pictures  or  catchlines  to 
attract  attention.  In  print  about  the  size  of  the 
type  on  this  page  appears  something  like  the 
following: 


A  lamp  chimney  is  a  small  matter  to 
make  so  much  fuss  about. 

There  would  be  no  need  of  fuss  if  I 
could   only  impress   on   the  American 

housewife's  mind  that  's 

lamp  chimneys  give  more  light,  almost 
never  break  from  heat,  fit  the  lamp, 
and  avoid  that  sickening  lamp  odor. 

Don't  be  fooled,  my  name  is  on  it  if 
it's  a . 


ADVERTISING  489 

Illustrations  like  these  could  be  multiplied  almost 
indefinitely,  but  would  only  go  to  show  more  clearly 
that  there  is  almost  nothing  made  about  which  mere 
"reminder"  copy  is  the  best  that  can  be  done.  To 
determine  whether  *' reason  why"  copy  can  be  made 
up,  the  following  tests  should  be  applied  to  the  pro- 
duct, and  considered  carefully  in  making  out  adver- 
tising copy. 

1.  Doesit  satisfy  anew  want?  Is  there  any  way 
in  which  it  can  be  applied  that  will  satisfy  a  new 
want?  What  are  these  wants,  and  if  they  do  not 
exist,  how  can  they  be  created?  An  example  of 
advertising  based  on  this  consideration  is  that  of  a 
noted  linament,  which  showed  pictorially  how  the 
product,  usually  associated  solely  with  bruises  and 
sore  joints,  could  be  used  to  cure  neuralgia,  catarrh, 
and  even  headache. 

2.  Can  it  take  the  place  of  some  old  product  and 
do  it  better  or  cheaper?  The  makers  of  a  powdered 
ammonia  have  educated  housewives  pretty  well  to 
the  advantages  of  their  product  over  the  liquid  form. 

3.  Is  it  different  from  competing  products,  in 
outward  form,  uses,  or  methods  of  manufacture? 
Such  of  these  points  as  should  be  of  interest  to  con- 
sumers will  give  abundant  material  for  reason  why 
copy. 

4.  Can  any  argument  be  put  forward  on  any 
ground  whatever,  as  to  why  this  product  is  superior 
to  any  other,  or  why  the  customer  should  buy  it?  If 
not,  has  it  any  excuse  for  existence  at  all? 

5.  Can  a  higher-priced  product  be  made  and  a 
demand  created  for  that? 

Remembering,  of  course,  that  there  are  certain 


490  BUSINESS  PEINCIPLES 

conditions  under  which  mere  publicity  is  all  that  is 
desired,  the  ordinary  straightforward  advertisement 
must  be  based  on  reasons  why.  Most  products  can- 
not be  sold  simply  by  printing  a  picture  of  a  beauti- 
ful woman,  an  amiable  clown,  or  a  hundred  thousand 
trade  marks.  The  consumption  of  a  product  rests 
upon  intelligent  selection,  which  can  only  come  from 
a  knowledge  of  the  product  and  what  it  will  do.  In 
the  case  of  a  certain  brand  of  beef  extract,  for  in- 
stance, you  have  to  tell  people  why  they  should  eat 
it,  and  to  tell  them  why  they  should  eat  it,  you  must 
tell  them  how  it  is  made,  what  it  is  made  of  and 
under  what  conditions,  and  why  it  wiU  be  better  for 
them  than  any  other  brand  of  beef  extract. 

Many  instances  could  be  cited  to  show  that  the 
most  successful  firms  are  turning  away  from  **  at- 
tract attention"  pictures  and  getting  down  to 
business  with  straight-from-the-shoulder,  **  reason- 
why"  advertising.  The  house  of  the  **57  varieties" 
once  semed  to  favor  pictures  of  a  handsome  young 
woman  with  an  agreeable  clerk  showing  her  some  of 
the  fifty-seven.  Look  in  the  magazine  nowadays 
and  you  will  find  some  very  strong  and  convincing 
talk  about  ketchup  and  benzoate  of  soda. 

Some  of  the  members  of  what  may  be  called  the 
old  school  looks  upon  "reason  why"  copy  as  a  sort 
of  long  drawn  out  story  that  goes  thoroughly  into 
the  merits  and  talking  points  of  the  product,  like  the 
catalogue  of  an  automobile  house.  It  is  supposed 
to  present  a  striking  contrast  to  the  strong  lines  of 
display  advertising.  This  is  a  wrong  conception. 
"Reason  why"  copy  may  be  as  short,  as  snappy,  and 
as  effective  as  you  please.    It  is  to  be  contrasted 


ADVERTISING  491 

rather  with  what  we  have  termed  "name"  or  ** re- 
minder" copy,  which  is  designed  merely  to  attract 
attention  to  the  product  without  giving  any  convinc- 
ing arguments  in  its  favor  or  any  reason  why  it 
should  be  bought.  Copy  for  a  food  advertisement 
that  makes  the  mouth  water,  that  is  so  put  together 
as  to  make  the  reader  long  to  gratify  a  taste  for  that 
particular  food,  is  "reason  why"  copy,  no  matter 
how  few  are  the  words  devoted  to  a  description  of 
the  article. 

On  the  other  hand,  many  long-winded  advertise- 
ments that  seem  at  first  glance  to  be  filled  with  con- 
vincing arguments  fail  to  show  any  reasons  why  the 
reader  should  purchase  the  product  advertised  in- 
stead of  any  one  of  a  hundred  others.  Thousands  of 
automobile  advertisements  serve  merely  to  create  in 
the  reader  a  desire  to  indulge  in  the  pleasures  of 
whizzing  over  country  highways,  without  giving  any 
reason  why  they  should  gratify  this  desire  in  the 
particular  machine  advertised.  Copy  of  this  kind 
serves  no  other  purpose  than  to  remind  the  reader  of 
the  name  of  the  product.  If  some  other  article  can 
be  substituted  in  place  of  the  one  intended,  the  adver- 
tisement will  create  as  much  demand  for  a  com- 
peting article  as  it  does  for  the  company's  product. 

It  is  obvious  that  not  all  the  reasons  for  a  particu- 
lar commodity  can  be  crowded  into  a  single  adver- 
tisement. The  human  mind  is  so  constituted  that  it 
will  not  grasp  firmly  more  than  one  or  two  ideas  at 
a  time,  especially  in  the  limited  time  that  an  adver- 
tisement can  be  expected  to  hold  the  reader's  atten- 
tion. It  is  better  to  hammer  home  two  or  three  rea- 
sons each  week  or  each  month  than  to  bunch  all  the 


492  BUSINESS  PEINCIPLES 

reasons  together  so  that  none  of  them  sinks  in. 
Energy  that  is  concentrated  in  one  direction  brings 
results.  The  man  who  goes  out  shooting  with  small 
shot  covers  a  larger  area,  but  he  brings  down  no 
large  game. 

Advertising  that  only  attracts  attention  has  few 
uses;  it  is  not  the  kind  that  develops  real  selling 
horse-power.  It  is  at  the  service  of  the  man  who 
aims  at  notoriety,  celebrity,  popularity.  Publicity 
that  aims  to  build  up  trade  must  be  constructed 
along  different  lines.  This  sort  of  publicity  calls  for 
a  clear  and  lucid  statement  of  reasons  why  a  certain 
product  should  be  preferred  over  other  products  in 
its  class.  It  is  persuasive,  argumentative,  convinc- 
ing, educational.  Advertising  of  this  kind,  sup- 
ported by  the  vigorous  co-operation  of  the  selling 
organization  and  of  all  the  departments,  is  one  of  the 
strongest  assets  a  business  can  possess.  It  will  tide 
a  concern  over  hard  times  and  carry  it  safe  through 
the  severest  financial  storms.  It  is  the  vital  force 
that  can  be  depended  upon  to  keep  moving  the  ma- 
chinery of  business  organization. 


QUIZ  QUESTIONS 


CHAPTER  I. 
Historical  Survey  of  Forms  of  Industrial  Organization. 

Pages  11-43. 

1.  What  wants  of  mankind  have  given  rise  to  parks,  art 
museums,  gambling  houses,  diamond  mines? 

2.  Hov7  does  the  labor  of  building  an  ant  hill  differ  from 
that  of  making  a  bird's  nest? 

3.  Under  the  housework  system,  what  products  would 
naturally  be  first  exchanged? 

4.  Name  some  survivals  of  the  help  and  hire  system. 

5.  Explain  the  rise  of  the  handicraft  system. 

6.  Why  should  the  growth  of  towns  further  the  handi- 
craft? 

7.  In  what  capacities  did  the  handicraftsman  act  as  work- 
man, capitalist,  employer  and  merchant? 

8.  In  what  way  did  an  apprentice  differ  from  a  member 
of  the  help  and  hire  squad? 

9.  In  what  ways  did  the  gilds  become  exclusive  ? 

10.  State  the  chief  object  of  craft  gild  regulations.  How 
do  they  compare  with  the  rules  of  labor  unions  nowadays? 

11.  How  did  the  gilds  secure  monopoly  of  the  town 
market  ? 

12.  How  was  permanence  of  subsistence  secured ;  equality 
of  earnings? 

13.  What  was  the  attitude  of  the  gilds  toward  new  in- 
ventions and  new  processes?  Is  their  attitude  the  same  as 
that  of  labor  unions  today? 

14.  What  were  gild  regulations  as  to  prices,  time,  con- 
dition and  place  of  sale  of  products? 

493 


494  BUSINESS  PEINCIPLES 

15.  What  services  did  gilds  perform  for  town  and  nation  ? 

16.  On  what  depended  the  permanence  of  the  handicraft 
system?  Can  men  remain  for  a  long  time  industrially  and 
socially  equal? 

17.  What  parts  of  the  gild  organization  gained  predomi- 
nance over  the  other  parts,  and  why? 

18.  In  what  respects  did  the  domestic  system  differ  from 
the  handicraft  gild  system  ? 

19.  Why  is  it  sometimes  called  the  commission  system? 

20.  Name  three  kinds  of  master  craftsmen  and  define 
their  economic  position. 

21.  For  what  reason  might  the  small  master  lose  his 
economic  independence? 

22.  Trace  the  rise  of  the  factory  system  out  of  the  domes- 
tic system. 

23.  What  features  make  up  the  factory  system? 

24.  Compare  the  factory  system  with  the  preceding  forms 
of  organization  from  the  point  of  view  of  the  workman?  Of 
the  capitalist?    Of  society  in  general? 

25.  Trace  survivals  of  all  types. 

26.  What  conditions  brought  out  the  so-called  business 
man? 

27.  Should  a  business  man  take  a  partner?  Why  or  why 
not? 

28.  Explain  joint  stock,  limited  liability,  perpetual  life. 

29.  Disadvantages  of  a  corporation. 

30.  What  is  its  value  to  society? 

31.  What  factors  should  be  considered  by  the  modem 
business  man  in  determining  how  he  shall  use  his  talents  and 
his  capital? 

CHAPTER  II. 

Efficiency  of  the  Working  Force;  Division  of  Labor. 

Pages  45-61. 

1.  What  is  the  relation  between  the  cost  of  labor  and  cost 
of  production? 

2.  Do  high  wages  make  high  prices  ?  State  some  instances 
in  which  they  do  not. 


QUESTIONS  495 

3.  In  what  ways  is  the  employer  interested  in  the  pro- 
ductive efficiency  of  his  employees? 

4.  What  is  the  greatest  factor  in  increasing  the  produc- 
tivity of  labor?    What  other  factors  can  you  name? 

5.  In  what  ways  will  division  of  labor  increase  the  work- 
ingman's  efficiency? 

6.  In  what  way  does  the  use  of  machinery  affect  the  prin- 
ciple of  division  of  labor? 

7.  What  is  meant  by  territorial  or  geographical  division 
of  labor? 

8.  What  factors  effect  the  localization  or  grouping  of 
industries  ? 

CHAPTER  III. 

Limitations  of  the  Division  of  Labor. 

Pages  62-69. 

1.  How  is  division  of  labor  effected  by  the  size  of  an 
industry  ? 

2.  What  kinds  of  products  offer  larger  scope  as  to  the 
application  of  this  principle? 

3.  Give  a  list  of  products  in  the  manufacture  of  which 
the  principle  of  division  of  labor  is  difficult  to  apply. 

4.  What  is  the  benefit  to  the  workingman  of  the  division 
of  labor ;  to  the  business  man  ? 

5.  What  is  the  part  of  the  manager  in  increasing  the 
efficiency  of  the  working  force? 

6.  How  is  the  organization  of  its  labor  force  related  to 
the  efficient  management  of  the  business  concern  ? 

CHAPTER  IV. 
The  Large  Business  and  the  Small. 

Pages  71-85. 

1.  What  caution  should  be  observed  in  enlarging  a  small 
business  ? 

2.  State  some  of  the  advantages  of  large  scale  production. 

3.  What  is  meant  by  standardization  of  industry? 


496  BUSINESS  PEINCIPLES 

4.  What  advantages  accrue  from  the  use  of  standardiza- 
tion? 

5.  What  economical  gain  is  there  from  mere  bigness? 

6.  What  causes  may  prevent  a  small  concern  from  ex- 
panding successfully  into  a  large  one? 

7.  Why  should  the  profits  of  a  large  concern  be  greater 
than  those  of  a  small? 

8.  Name  some  industries  in  which  the  small  concern  is 
seriously  handicapped. 

9.  Why  are  textile  factories  not  as  large  as  steel  plants? 
■".O.    What  restrictions  do  local  conditions  place  upon  the 

size  of  an  establishment? 

CHAPTER  V. 

Internal  Orgajiization ;    Defects  of  Ordinary  Types  of 
Management. 

Pages  87-131. 

1.  What  is  the  central  object  of  the  study  of  business  man- 
agement ? 

2.  What  place  has  personality  in  the  organization  of  a 
business  ? 

3.  What  is  the  place  in  business  of  scientific  organization  ? 

4.  What  is  the  danger  of  general  principles  that  are 
supposed  to  appy  with  invariable  success?  Name  some  pet 
theories  that  have  failed. 

5.  What  is  the  value  of  system?  Give  an  instance  of 
system  carried  too  far. 

6.  Can  any  general  principle  be  applied  to  organization? 

7.  What  is  the  value  of  organization?     Of  authority? 

8.  In  what  ways  should  responsibility  be  limited? 

9.  Explain  what  is  meant  by  tapering  authority. 

10.  What  is  the  value  of  discipline? 

11.  What  is  the  value  of  records  and  statistics? 

12.  What  is  the  value  of  esprit  de  corps? 

13.  What  is  the  attitude  of  the  workmen  toward  a  small 
employer?    Toward  a  large  corporation? 

14.  How  should  these  factors  of  business  organization  be 
applied  in  individual  cases? 


QUESTIONS  497 

15.  What  is  the  typical  form  of  business  organization  in 
this  country?    Why? 

16.  What  advantages  accrue  from  applying  our  principles 
of  organization  to  a  typical  form  of  industry? 

17.  What  is  the  most  general  fault  of  the  customary  sys- 
tem of  management? 

18.  In  what  kinds  of  work  is  the  military  form  of  organ- 
ization the  best? 

19.  In  what  kinds  of  business  should  other  than  military 
virtues  be  emphasized? 

20.  What  features  should  be  emphasized  in  an  industry 
where  there  is  very  close  competition  as  to  quality  and  price? 

21.  What  is  the  antithesis  to  military  management? 
What  is  its  most  prominent  feature? 

22.  What  men  and  functions  will  an  ordinary  typical 
business  comprise? 

23.  How  may  the  efficiency  of  all  departments  be  brought 
up  to  a  uniform  standard  in  both  types  of  management? 

24.  What  are  the  benefits  of  cooperation  between  super- 
intendents and  foremen? 

25.  What  duties  and  responsibilities  rest  upon  foremen? 
Upon  what  basis  are  foremen  usually  selected?  How  should 
they  be  selected? 

26.  What  faults  are  often  present  in  the  workmen,  and 
why? 

27.  What  defects  are  to  be  found  in  handling  the  mate- 
rials of  manufacture? 

28.  What  is  needed  to  secure  economical  handling  of 
machines  and  men?  Give  an  illustration  of  scientific  experi- 
ment in  the  economical  handling  of  an  ordinary  laborer's 
work. 

29.  Name  two  defects  often  found  in  a  buying  depart- 
ment. 

30.  How  would  you  begin  to  build  up  a  satisfactory  buy- 
ing department?    What  is  particularly  to  be  avoided? 

31.  Why  should  the  purchasing  accounts  be  kept  separate 
from  those  of  the  receiving  or  storing  room? 


498  BUSINESS  PEINCIPLES 

32.  What  should  be  looked  for  in  the  sales  department? 
"Why  should  salesmen  be  trained? 

33.  What  steps  may  be  taken  to  remedy  defects  in  organ- 
ization ? 

CHAPTER  VI. 
Military  Organization. 

Pages  133-159. 

1.  Describe  the  features  of  a  military  organization. 

2.  How  does  an  industrial  army  differ  from  one  organized 
for  warfare? 

3.  In  what  measure  may  the  element  of  time  affect  the 
organization  of  an  industrial  concern? 

4.  Give  three  illustrations  showing  that  lengthened  proc- 
esses make  for  cheaper  cost  of  production, 

5.  In  what  lines  of  business  is  speed  of  operation  of  more 
importance  than  low  cost  of  production? 

6.  Name  some  of  the  advantages  of  a  military  type  of 
organization. 

7.  What  should  be  the  first  consideration  in  adopting 
improved  plans  of  management?  What  opposition  may  be 
expected  from  the  foremen  and  superintendents?  From  the 
workmen  ? 

8.  How  may  the  support  of  foremen  be  secured?  De- 
scribe the  organization  of  advisory  board. 

9.  Describe  the  work  of  such  a  board  in  training  foremen. 

10.  How  may  progress  on  new  ideas  be  checked  up? 

11.  What  is  the  value  of  reports  on  daily  routine  work? 

12.  What  matters  involving  the  personnel  and  discipline 
of  workmen  should  come  before  the  board  ?  How  should  they 
be  handled? 

13.  Describe  the  advisory  board  system  in  a  large  organ- 
ization. 

14.  What  duties  should  fall  to  a  main  advisory  board  in 
a  large  concern? 

15.  Describe  the  matters  that  should  be  considered  by  a 
sub-council  in  the  advisory  board  system. 


QUESTIONS  499 

16.  Why  is  it  important  to  enlist  the  support  of  job- 
bosses  ? 

17.  What  is  the  value  of  foremen 's  meetings  ?  What  mat- 
ters should  be  considered  in  such  meetings? 

18.  How  may  responsibility  for  plans  projected  be  regis- 
tered? 

19.  Enumerate  the  advantages  of  the  advisory  board 
system. 

CHAPTER  Vn. 

Functional  Organization. 

Pages  161-183. 

1.  What  is  the  greatest  weakness  of  the  military  system 
as  regards  economies  of  production? 

2.  In  what  lines  of  business  is  cheap  production  of  minor 
importance?  When  should  specialization  of  departments  and 
of  labor  give  way  to  other  considerations? 

3.  In  what  lines  of  business  is  low  cost  of  production  of 
most  importance? 

4.  What  features  should  be  emphasized  in  the  manage- 
ment of  production  of  the  following:  Chairs,  snow-shoes, 
pianos,  sewing  machines,  parlor  cars,  hay-wagons?  Give  rea- 
sons for  each. 

5.  Using  the  principle  of  the  division  of  labor  as  a  basis, 
explain  the  superiority  of  the  functional  system  over  the 
military  organization. 

6.  Given  foremen  of  high  natural  ability  with  the  military 
system,  will  the  economies  of  production  be  as  well  realized 
as  with  the  functional  organization?    Why,  or  why  not? 

7.  Describe  the  duties  of  the  ordinary  foreman. 

8.  Enumerate  the  qualities  a  good  foreman  must  possess. 

9.  In  functional  management,  what  duties  of  the  foreman 
are  removed  from  the  shop  entirely? 

10.  What  arrangements  for  fixing  responsibility  are  found 
in  functional  management? 

11.  In  what  way  do  orders  sent  out  from  the  executive 
reach  the  men  in  functional  management? 

12.  In  what  way  is  the  grouping  of  the  workmen  effected? 


600  BUSINESS  PEINCIPLES 

13.  To  whom  is  the  workman  responsible  in  functional 
management  for  (a)  good  workmanship,  (b)  speed,  (c)  good 
behavior? 

14.  What  is  a  functional  boss  and  what  is  his  relation  to 
the  men  under  him? 

15.  Describe  the  work  of  the  "gang"  boss. 

16.  Describe  the  functions  of  the  "speed"  boss. 

17.  What  qualities  must  the  "inspector"  have? 

18.  What  are  the  duties  of  the  "repair"  boss? 

19.  Describe  the  duties  of  the  "order  of  work"  or  route 
clerk. 

20.  In  what  way  does  the  "instruction  card"  foreman 
relieve  the  ordinary  foreman  of  clerical  duties?  The  "time" 
and  "cost"  foreman? 

21.  In  introducing  functional  management,  what  cautions 
must  be  observed? 

22.  In  changing  to  functional  management  what  parts  of 
the  system  should  be  first  introduced,  and  why? 

23.  State  specifically  the  advantages  that  functional  man- 
agement has  over  other  types. 

CHAPTER  VIII. 
The  Office  and  the  Departments. 

Pages  185-207. 

1.  What  is  the  relation  of  the  office  to  the  producing 
departments  of  a  business? 

2.  In  what  way  does  the  type  of  organization  affect  the 
functions  of  the  office? 

3.  What  purposes  are  furthered  by  the  securing  and  filing 
of  reports? 

4.  Enumerate  the  items  that  should  go  into  the  factory 
reports?     Sales  reports?     The  sales  estimate  report? 

5.  What  is  the  purpose  of  an  analyzed  profit  and  loss 
statement  ? 

6.  How  can  the  cost  reports  be  used  to  advantage? 

7.  What  delays  or  losses  may  arise  from  not  analyzing 
orders? 


QUESTIONS  501 

8.  What  items  should  an  analysis  include? 

9.  What  is  the  relation  of  the  office  to  standard  time 
study  for  machines  and  men? 

10.  What  are  the  duties  of  the  ** balance  clerk"? 

11.  Of  what  importance  is  the  system  of  identification  of 
parts? 

12.  What  useful  purposes  are  served  by  an  experiment  or 
test  department? 

13.  Give  an  illustration  of  the  work  of  the  test  depart- 
ment in  enabling  a  concern  to  meet  competition? 

14.  Describe  the  duties  of  the  man  who  is  in  charge  of 
the  maintenance  of  the  office  organization. 

15.  What  uses  can  be  made  of  the  tickler?  What  are 
the  chief  advantages  of  the  tickler  system? 

16.  What  are  the  functions  of  an  employment  bureau? 

17.  What  provisions  should  be  made  for  rushing  through 
special  and  rush  orders? 

18.  Does  an  increase  in  the  proportion  of  non-producers 
mean  greater  cost  of  production,  and  why? 

19.  Speaking  generally,  what  proportion  should  obtain 
between  producers  and  non-producers  (a)  in  a  saw-mill,  (b)  in 
a  printing  establishment,  (c)  in  a  department  store? 

CHAPTER  IX. 
Scientific  Standard  Times  for  Machine  Work. 

Pages  209-236. 

1.  Should  tools  and  appliances  be  left  to  the  workman's 
individual  taste? 

2.  What  arguments  could  be  adduced  for  and  against 
this  contention? 

3.  What  is  gained  by  the  standardization  of  tools? 

4.  "It  is  better  to  have  all  appliances  of  second  grade, 
than  to  have  them  mainly  first  with  a  few  second  and  third 
class  tools  thrown  in."    Explain. 

5.  Give  a  concrete  illustration  of  the  unwisdom  of  allow- 
ing workmen  to  select  their  own  tools. 

6.  Why  is  there  no  additional  expense  involved  in  employ- 


602  BUSINESS  PRINCIPLES 

ing  a  skilled  mechanic  to  tighten  belts  and  care  for  machines? 

7.  Why  has  the  ordinary  foreman  small  knowledge  of 
what  the  possibility  of  output  is  in  his  department? 

8.  Give  as  well  as  you  can  the  variables  that  would  enter 
into  the  determination  of  standard  times  of  some  machine  work 
with  which  you  are  familiar. 

9.  What  practical  problems  present  themselves  in  making 
a  practical  use  of  standard  times? 

10.  Explain  the  uses  of  the  instruction  card. 

11.  Draw  up  an  instruction  card  of  some  machine  work 
with  which  you  are  familiar. 

12.  What  problems  must  be  met  in  securing  the  support 
of  foremen  to  standard  scientific  machining  ? 

13.  Outline  a  method  of  procedure  in  introducing  standard 
times  in  an  old  established  shop. 

14.  On  what  grounds  may  the  opposition  of  the  foremen 
to  new  methods  be  justified? 

15.  What  provisions  should  be  made  for  carrying  on 
experiments  to  determine  standard  times? 

16.  What  points  should  be  emphasized  in  introducing  new 
methods  to  the  foremen  and  other  workmen? 

17.  What  parts  of  the  process  not  included  in  the  actual 
machine  operation  should  be  given  careful  attention? 

CHAPTER  X. 

The  Expense  of  Wasted  Time. 

Pages  237-261. 

1.  In  what  ways  does  time  wasted  mean  expense? 

2.  Give  in  outline  form  the  points  of  wasted  time  in  some 
machine  operation  with  which  you  are  familiar. 

3.  How  may  we  determine  whether  a  workman  is  most 
efficiently  employed  or  not? 

4.  In  what  way  does  the  principle  of  the  division  of  labor 
help  us  to  answer  this  question? 

5.  What  is  the  first  criterion  in  determining  whether  a 
workman  is  using  his  time  most  effectively  or  not? 

6.  Make  out  as  large  a  list  as  you  can  of  the  things  the 
ordinary  workman  will  do  that  means  wasted  time? 


QUESTIONS  603 

7.  What  is  the  difference  between  a  busy  shop  and  pro- 
ductive one?  Why  are  workmen  often  willing  to  be  "busy" 
but  not  productive? 

8.  Take  the  list  of  things  which  mean  wasted  time  and 
indicate  for  each  item  how  the  wasted  time  may  be  elim- 
inated. 

9.  In  what  ways  may  economy  of  material  be  secured? 

10.  Indicate  the  advantages  of  boxes  for  holding  tools 
and  materials. 

11.  What  use  may  be  made  of  low  tables  or  benches? 

12.  What  disadvantages  besides  the  wasting  of  time  arises 
from  allowing  workmen  to  grind  their  own  tools  ? 

13.  In  determining  standard  times  for  assembling  or 
skilled  handwork  what  factors  are  to  be  considered? 

14.  What  principles  should  be  most  emphasized  in  con- 
sidering the  organization  of  men  employed  in  assembling  and 
fitting  work? 

15.  What  is  the  object  of  classifying  such  work? 

16.  How  may  the  points  of  wasted  time  be  determined  in 
the  case  of  skilled  workmen? 

17.  Name  some  of  the  small  details  essential  to  rapid  and 
efficient  manufacture. 

18.  What  is  the  importance  of  having  parts  arranged  in 
logical  order? 

19.  Why  is  it  impossible  to  secure  in  hand  work  the  ac- 
curate results  derived  from  a  study  of  machine  operation? 

20.  What  factors  of  wasted  time  can  be  eliminated  with- 
out expense  for  new  tools  and  equipment? 

21.  What  data  is  necessary  in  starting  a  campaign  of 
reform? 

CHAPTER  XI. 

Efficiency  and  Wages;   Day  Work. 

Pages  263-291. 
1.    What  special  consideration  from  the  laborer's  point  of 
view  must  be  borne  in  mind  in  determining  a  system  of  paying 
wages  ? 


504  BUSINESS  PRINCIPLES 

2.  "What  is  the  danger  of  introducing  changes  too  radical 
in  their  nature? 

3.  What  are  the  advantages  of  accelerated  production  to 
the  manufacturer  if  wages  increase  in  exact  ratio? 

4.  How  should  the  manufacturer  attack  the  problem  of 
the  excessive  cost  of  production? 

5.  Why  is  the  tendency  to  ''take  it  easy"  strongest  in 
day  work? 

6.  Explain  the  paralyzing  effect  of  herding  men  in  classes 
and  paying  them  a  uniform  rate  per  day. 

7.  How  does  the  "lump  of  labor"  theory  help  to  retard 
production  ? 

8.  What  is  meant  by  the  flexibility  of  the  day-work  plan  ? 

9.  Enumerate  the  different  kinds  of  work  on  which  the 
day-work  system  is  best. 

10.  Is  there  danger  of  soldiering  on  tasks  requiring  ex- 
treme delicacy  in  perfection  of  workmanship?  Why  or  why 
not? 

11.  Where  several  men  work  simultaneously  on  the  same 
task  what  cautions  should  be  observed  in  the  inspection  of 
the  work? 

12.  Is  there  danger  of  very  delicate  and  valuable  ma- 
chinery being  injured  by  undue  haste?  Should  the  employer 
limit  the  output  ?    Is  there  any  other  solution  of  this  problem  ? 

13.  What  caution  should  be  observed  with  work  that  pre- 
sents difficulties  in  measuring  it? 

14.  Explain  how  repairing  and  clerical  work  may  be 
measured  and  paid  by  the  piece. 

15.  Explain  the  advantage  of  deciding  definitely  the 
amount  and  kind  of  work  done. 

16.  Give  five  instances  of  work  of  such  a  nature  that  the 
workmen  are  kept  involuntarily  idle  part  of  the  time, 

17.  Explain  the  disadvantages  of  piece  rates  on  new  work. 

18.  Where  payment  by  the  day  is  necessary,  what  meth- 
ods may  be  employed  to  stimulate  a  large  output? 

19.  Give  an  example  of  the  credit  card  system. 

20.  Outline  a  system  by  which  the  workmen  are  stim- 
ulated through  definite  hope  of  reward. 


QUESTIONS  605 

21.  What  is  gained  by  a  definite  fixing  of  the  responsi- 
bility for  work  performed  on  the  individual  workman? 

22.  With  what  classes  of  workers  will  the  plan  of  letting 
the  work-people  go  home  after  their  tasks  are  done,  prove  most 
successful  ? 

23.  Describe  the  cooperative  or  profit-sharing  plan. 

24.  What  features  about  this  plan  hinder  its  efficacy  in 
stimulating  the  workmen? 

25.  Under  what  conditions  will  the  cooperative  plan  prove 
most  successful? 

CHAPTER  Xn. 

Efficiency  and  Wages;  Piece  Work. 

Pages  292-323. 

1.  Explain  the  employe's  direct  interest  in  large  output 
under  the  piece-rate  system. 

2.  What  objections  are  most  commonly  offered  against 
the  piece-rate  system? 

3.  In  what  sense  is  it  true  that  "haste  makes  waste"? 

4.  What  exceptions  should  be  noted  to  this  rule? 

5.  Under  what  conditions  is  piece  work  objectionable  on 
the  ground  that  the  workmen  will  over-exert  themselves? 

6.  Why  should  the  workman  wish  to  restrict  his  output 
when  he  is  paid  in  proportion  to  the  work  done? 

7.  In  what  sense  is  the  piece-rate  plan  a  system  of  penal- 
ties for  doing  well? 

8.  What  is  generally  understood  as  an  extravagant  rate 
of  daily  wages? 

9.  What  is  the  attitude  of  the  workman  toward  a  cut  in 
an  "extravagant"  piece  rate? 

10.  What  is  meant  by  systematic  soldiering? 

11.  Explain  the  danger  of  a  fixed  minimum  of  wages 
beyond  which  the  workman  cannot  go. 

12.  What  percentage  above  the  average  will  induce  the 
skilled  mechanic  to  do  his  best? 

13.  What  percentage  above  the  average  rate  of  wages  is 
required  in  other  kinds  of  work,  and  why? 


606  BUSINESS  PEINCIPLES 

14.  What  are  the  disadvantages  of  paying  more  than  is 
necessary  to  secure  the  largest  output  of  the  workman? 

15.  Are  cuts  in  piece  rates  necessary?  If  so,  why  should 
they  not  be  made  gradually  and  moderately  to  the  desired 
point? 

16.  Do  workmen  object  to  cuts  made  in  this  way?  If 
not,  why  not? 

17.  "The  simple  fact  is  that  uncut  piece  rates  lead  to 
wages  which  under  conditions  of  modern  manufacture  cannot 
be  maintained."    Explain. 

18.  If  the  foregoing  is  true,  why  have  wages  not  declined 
in  proportion  to  prices? 

19.  If  the  rates  must  be  cut  how  can  systematic  soldiering 
be  prevented? 

20.  Explain  the  advantages  of  the  time  guarantee  plan. 

21.  What  are  the  disadvantages  of  this  plan? 

22.  What  cautions  should  be  observed  in  applying  the 
proviso  guarantee  plan? 

23.  Under  what  conditions  will  it  work  best? 


CHAPTER  XIII. 
Efficiency  and  Wages;   Premium  and  Contract  Plan. 

Pages  325-354. 

1.  "Under  the  piece  work  system  the  employer  has  no 
direct  interest  in  large  output."    Explain. 

2.  Why  should  the  employer's  indirect  interest  in  large 
output  under  this  system  be  so  great  ? 

3.  Explain  what  is  meant  by  an  arrangement  under  which 
the  direct  gains  from  large  output  are  divided  between  the 
employer  and  the  employe. 

4.  Show  by  a  concrete  example  the  workings  of  the  pre- 
mium plan. 

5.  What  is  the  connection  between  the  premium  plan  and 
piece  work? 

6.  Why  is  the  premium  plan  not  so  directly  effective  as 
the  time  guarantee  plan? 


QUESTIONS  507 

7.  Why  not  do  away  with  these  objections  by  increasing 
the  premium? 

8.  What  rules  should  govern  the  amount  of  a  premium? 

9.  What  advantages  has  the  time   guarantee  plan   over 
the  premium  plan? 

10.  Is  there  any  objection  to  starting  with  a  low  premium 
and  raising  it  later? 

11.  "The  premium  plan  imposes  no  penalty  on  the  em- 
ploye for  not  making  good  time."    Is  this  a  defect? 

12.  What  is  the  most  serious  weakness  in  the  premium 
plan? 

13.  State  the  disadvantages  that  arise  from  the  practice 
of  basing  the  premium  on  previous  records. 

14.  In  what  cases  should  the  time  guarantee  be  combined 
with  the  premium  plan,  and  why? 

15.  Describe  the  contract  plan. 

16.  Under  what  conditions  is  this  plan  most  successful? 

17.  What  are  its  disadvantages  from  the  employer's  point 
of  view? 

18.  How  may  these  disadvantages  be  obviated? 

19.  What  is  the  position  of  the  workman  under  the  con- 
tract plan? 

CHAPTER  XrV. 
Efficiency  and  Wages;   the  Study  of  Unit  Times. 

Pages  355-378. 

1.  What  is  the  fundamental  requisite  to  a  scientific  sys- 
tem of  wage  pay? 

2.  State  the  disadvantages  of  not  having  an  accurate  sci- 
entific time  for  each  job. 

3.  What  is  understood  by  a  system  that  "induces  the 
workman  to  work  at  maximum  speed"? 

4.  What  is  meant  by  maximum  speed? 

5.  Has  the   employer   a  right  to   expect   this  from  his 
employes? 

6.  What  is  the  relation   of  minimum  standard  time  to 
systematic  soldiering?    To  unconscious  or  natural  soldiering? 


508  BUSINESS  PEINCIPLES 

7.  Under  what  conditions  would  knowledge  of  minimum 
time  cover  all  faults  in  the  premium  plan? 

8.  How  does  it  prevent  unfair  and  unjust  premium  rates? 

9.  Outline  the  study  of  unit  time.  Illustrate  by  a  concrete 
example. 

10.  Should  the  standard  time  be  that  of  the  average  or 
of  a  first-class  workman?  Discuss  the  consideirations  involved 
in  determining  this  point. 

11.  Make  out  a  form  for  a  study  of  unit  time  on  some 
simple  operating  with  which  you  are  familiar. 

12.  How  minute  should  be  the  subdivision  of  the  units  be 
made? 

13.  Give  an  illustration  of  the  methods  of  determining 
the  best  men  for  any  kind  of  task. 

14.  What  limitations  are  there  to  the  study  of  unit  times  ? 

CHAPTER  XV. 
Efficiency  and  Wages;    the  Task  Principle. 

Pages  379-405. 

1.  State  the  advantages  of  a  definitely  assigned  task. 

2.  Why  will  a  man  with  a  task  do  more  than  one  who  is 
merely  under  an  incentive  to  go  fast? 

3.  What  is  the  simplest  form  of  task  system? 

4.  What  is  the  practical  difficulty  in  the  way  of  this 
system  ? 

5.  Do  you  think  that  the  task  plan  in  its  simplest  form 
is  just?    Why  or  why  not? 

6.  Why  do  workmen  object  to  the  task  system? 

7.  What  measures  may  be  taken  to  secure  their  coopera- 
tion? 

8.  Are  these  measures  always  sure  of  success? 

9.  What  difficulties  does  the  task  system  present  to  work- 
men who  are  learning  to  attain  standard  time? 

10.  Explain  the  workings  of  the  bonus  plan.  How  is  it 
related  to  the  task  system?    To  the  premium  plan? 

11.  How  may  the  bonus  plan  be  gradually  shifted  into 
the  task  plan? 


QUESTIONS  509 

12.  Is  it  wise  to  do  this? 

13.  Under  what  conditions  is  the  bonus  plan  to  be  pre- 
ferred to  the  simple  task  system? 

14.  Describe  a  series  of  partial  bonuses. 

15.  Make  up  a  series  of  full  bonuses  on  graduated  times. 

16.  Enumerate  the  instances  in  which  the  bonus  plan  is 
superior  to  any  other  in  point  of  flexibility. 

17.  Describe  the  differential  piece  rate  system.    Illustrate 
by  a  concrete  example. 

18.  For  what  kinds  of  work  is  the  differential  rate  best? 

19.  In  what  kinds  of  work  should  the  differential  rate  be 
avoided  ? 

20.  What  ir.  your  mind  constitutes  the  relation  between 
efficiency  and  wages? 

CHAPTER  XVI. 

Belation  Between  Employer  and  Employed. 

Pages  407-436. 

1.  State  some  of  the  problems  that  might  be  included 
in  a  chapter  imder  this  title. 

2.  Do  labor  unions  interfere  with  business? 

3.  Are  labor  combinations  violations  of  the  common  law 
principle  ? 

4.  Should   labor  be   considered   in   the   same   class   with 
other  salable  commodities?    "Why  or  why  not? 

5.  Under  what  disadvantage  must  the  seller  of  labor  dis- 
pose of  his  product  ? 

6.  How  many  of  these  disadvantages  have  been  removed 
or  made  less  onerous  through  labor  unions? 

7.  What  labor  union  theories  or  activities  are  open  to 
objection  ? 

8.  Describe  the  "lump  of  labor"  theory. 

9.  Is  it  to  the  interest  of  the  working  class  as  a  whole 
to  restrict  output? 

10.  Prove  that  restricting  output  does  not   make  more 
work  for  any  class  of  laborers,  but  less. 

11.  What  justification  can  be  found  for  the  rule  "work- 
men should  not  be  asked  to  do  more  than  a  fair  day 's  work ' '  ? 


610  BUSINESS  PRINCIPLES 

12.  What  harm  may  the  application  of  this  rule  do  to 
capable  and  efficient  men? 

13.  What  has  been  the  effect  of  trade  unions  in  England? 

14.  Do  you  think  the  workingman  whose  union  rules  allow 
him  to  be  idle  half  the  day  is  happier  on  this  account? 

15.  What  is  the  position  of  the  union  man  who  is  loyal  to 
his  employer  and  who  wishes  to  advance  to  a  higher  position? 

16.  Are   the   interests   of  labor   and   capital   necessarily 
opposed  ? 

17.  Do  the  workmen  gain  what  the  employers  lose? 

18.  How  could  labor  unions  be  managed  so  as  to  benefit 
both  employers  and  men? 

19.  How  may  the  employer  introduce  scientific  manage- 
ment with  unions  as  they  are  today? 

20.  "Proper  treatment  by  the   employers  implies  some- 
thing more  than  strict  honesty."    Explain. 

21.  What  are  the  objects  of  plans  for  social  betterment? 

22.  Discuss  plans  aiming  to  better  workmen's  health  and 
housing. 

23.  Compare,  as  to  value,  plans  for  intellectual  improve- 
ment with  plans  for  physical  recreation  of  the  employee. 

24.  Outline  the  methods  of  dealing  with  refractory  and 
disobedient  employees. 

CHAPTER  XVII. 
Salesmanship  and  the  Selling  Department. 

Pages  437-466. 

1.  Why  is  efficiency  in  his  work  of  more  importance  to 
the  salesman  than  to  other  kinds  of  workmen? 

2.  Why  is  efficiency  more  important  to  the  selling  depart- 
ment than  any  other? 

3.  What  importance  should  be  attached  to  the  policy  of 
securing  big,  impressive  men  as  salesmen? 

4.  What  is  to  be  gained  by  careful  training  of  the  sales 
force  ? 

5.  In  what  ways  may  the  manufacturer  dispose  of  his 
products  other  than  by  selling  them  himself? 


QUESTIONS  511 

6.  State  the  advantages  and  disadvantages  of  selling 
through  a  middleman. 

7.  For  what  kinds  of  products  would  you  recommend  a 
middleman  system? 

8.  Outline  the  advantages  of  salesmen's  meetings, 

9.  Draw  up  a  programme  for  a  salesmen's  meeting  in 
some  business  with  which  you  are  familiar. 

10.  State  the  best  methods  of  handling  the  problem  of 
exchanging  the  old  products  for  new. 

11.  In  what  ways  may  the  branch  agencies  cooperate  with 
the  central  office? 

12.  What  items  should  go  into  an  instruction  book  for 
salesmen?  Illustrate  by  reference  to  some  well-known  busi- 
ness. 

13.  Outline  the  work  of  training  a  new  salesman  both  in 
the  office  and  in  the  field. 

14.  To  what  use  can  salesmen's  reports  be  put? 

15.  How  may  a  sales  manager  make  sure  that  the  territory 
is  being  covered? 

CHAPTER  XVIII. 

Advertising. 

Pages  467-492. 

1.  From  what  points  of  view  may  the  subject  of  adver- 
tising be  studied? 

2.  "What  qualities  are  necessary  in  a  successful  advertis- 
ing manager? 

3.  At  what  points  do  the  work  of  the  salesman  and  the 
advertiser  touch? 

4.  How  may  the  advertiser  make  effective  use  of  the 
salesmen's  demonstration  meetings? 

5.  Outline  a  system  of  cooperation  between  the  salesman 
and  the  advertising  department  in  reaching  prospective  cus- 
tomers. 

6.  How  may  the  sales  force  help  the  advertiser  in  making 
**copy"? 

7.  What  is  the  place  of  an  advertisement  in  the  modern 
magazine  or  newspaper? 


513  BUSINESS  PRINCIPLES 

8.  "The  circular  letter  or  folder  is  an  intruder  of  the 
worst  kind."    Explain. 

9.  What  is  the  exact  value  of  "attract  attention"  copy? 

10.  Give  several  illustrations  from  your  own  experience 
of  advertising  copy  that  attracts  attention  only. 

11.  What  kinds  of  products  would  you  consider  adaptable 
to  "reason  why"  advertising. 

12.  What  is  the  value  of  a  trade-mark? 

13.  With  what  kinds  of  products  should  the  trade-mark 
be  emphasized?    When  should  it  be  kept  in  the  background? 

14.  Give  illustrations  of  "reason  why"  copy  on  soap, 
sugar,  and  coffee. 

15.  What  tests  should  be  applied  to  the  products  to  be 
advertised  and  considered  in  making  out  copy? 

16.  Draw  up  advertising  copy,  which  will  illustrate  the 
principles  brought  out  in  this  chapter,  for  three  products  with 
which  you  are  familiar. 


INDEX 


A. 

Advertising 467 

Advertising  Copy 476 

Advisory  Board 147 

Authority 94 

B. 

Bonus  Plan,  The 389 

Buying  Department 123 

C. 

Contract  Plan 349 

Corporations  37 

Cooperative  Plan 388 

D. 

Differential  Piece-rate  System 401 

Discipline   434 

Division  of  Labor 45 

Domestic  System,  The 25 

E. 

Economies  of  Production 148 

Efficiency  in  Wages — Day  Work 263 

Employment  Bureau 202 

F. 

Factory  System,  The 29 

Foremen's  Reports 149 

Functional  Organization 161 

Functional  Foremen 174 

513 


614  INDEX 

G. 
Guilds,  The 18 

H. 

Handicraft  System,  The 14 

Household  System,  The 11 

High  Speed  Steel 216 

I. 

Industrial  Betterment 428 

Internal  Organization  87 

Instruction   Cards 221 

Inspection 280 

L. 
Labor  Unions 407 

M. 

Machine  Work 209 

Military  Organization 133 

Mnemonic  Symbols 198 

N. 
"Name"  Copy 483 

0. 

Office,  The 185 

Overhead  Cost 267 

P. 

Partnerships   36 

Piece-work   293 

Planning  Department  121 

Premium  Plan,  The 325 

Profit-sharing  Plan,  The 288 

Proviso  Guarantee 321 

E. 

"Eeason  Why"  Copy 487 

Eesponsibility 95 

Roundabout  Processes 136 


INDEX  515 

S. 

Salesmanship 437 

Salesmen's  Meetings 449 

Salesmen's  Training  Department 461 

Sales  Estimate  Eeports 190 

Special  Departments 74 

Standardization  of  Industry 76 

Sub-Council  Boards  .155 

T. 

Task  Principle,  The 371 

Territorial  Division  of  Labor 57 

Time  Guarantee 317 

U. 
Unit  Times 355 

W. 

Walking  Delegates 416 

Wasted  Time 237 


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